PUBLIC  OWNERSHIP  OF 
•   •     RAILROADS 


I  V  "  • 


STATEMENT 


OF 

HON.  ALBERT  M.  TODD 

PRESIDENT  OF  THE 

PUBLIC  OWNERSHIP  LEAGUE  OF  AMERICA 

IN  THE 

HEARINGS  BEFORE  THE  COMMITTEE 

ON^kgTERSTATE  COMMERCE,  UNITED 

STim6s\lSENATE    :    :    SIXTY  FIFTH 

\_CoNGREy s    :    :    :    THIRD  SESSION 

FEBRUARY  21,  1919 


SEP  26  1960 


GOVT. 


ROOAi 


WASHINGTON 

GOVERNMENT  PRINTING  OFFICE 
1919 


"  This  country  and  all  that  is  within  it  belongs  to  the  people  who  inhabit 
it." — Abraham  Lincoln. 

"Every  measure  must  be  tested  by  this  question  only:  Is  it  just?  Is  it  for 
the  benefit  of  the  average  man,  without  influence  or  privilege?  Does  it  embody 
the  highest  conception  of  social  justice,  without  respect  to  person  or  class 
or  particular  interest?" — Woodroiv  Wilson. 

"  Real  public  ownership  is  the  essence  of  democracy.  Instead  of  dividing 
men  into  masters  and  mastered,  it  brings  men  together  in  a  union  of  interest, 
and  affords  the  conditions  necessary  for  the  highest  traits  of  conscience  and 
character." — Prof.  Frank  Parsons  of  the  Boston  Law  School,  in  "  The  City  for 
the  People." 

"  In  its  search  for  truth  the  commission  had  to  overcome  many  obstacles, 
such  as  the  burning  of  books,  letters,  and  documents  and  the  obstinacy  of 
witnesses  who  declined  to  testify  until  criminal  proceedings  were  begun  for 
their  refusal  to  answer  questions.  The  New  Haven  Railroad  system  has 
more  than  300  subsidiary  corporations  in  a  web  of  entangling  alliances  with 
each  other,  many  of  which  are  seemingly  planned,  created,  and  manipulated 
by  lawyers  expressly  retained  for  the  purpose  of  concealment  of  deception." — 
V.  8.  Interstate  Commerce  Commission,  July  11,  1914. 
2 


PUBLIC  OWNERSHIP  OF  RAILROADS 


STATEMENT  OF  HON.  ALBERT  M.  TODD,  PRESIDENT  OF  THE 
PUBLIC  OWNERSHIP  LEAGUE  OF  AMERICA 

IN  THE  HEARINGS  BEFORE  THE  COMMITTEE  ON  INTERSTATE  COM- 
MERCE, UNITED  STATES  SENATE,  SIXTY-FIFTH  CONGRESS, 
THIRD  SESSION,  FEBRUARY  21,  1919. 


Pages. 
PART      I. — PRELIMINARY  BRIEF 3-11 

PART    II. — BASIC  PRINCIPLES  OP  PUBLIC  OWNERSHIP  AND  ITS  ACHIEVEMENTS 

THROUGHOUT  THE  WORLD 11-20 

PART  III. — RAILWAY  EXPLOITATION  UNDER  PRIVATE  OWNERSHIP 20-44 


PART  I.— PRELIMINARY  BRIEF. 

Now  that  the  curtain  is  falling  on  the  last  scene  of  the  greatest  tragedy  of  the  ages 
born  of  avarice  and  the  lust  for  power  we  rejoice  together  that  a  new  day  is  about  to 
dawn  upon  our  world,  in  which  we  hope  no  drainas  of  hate  and  avarice  will  ever 
again  be  enacted  by  the  nations,  but  from  the  sacrifices  of  blood  and  treasure  which 
have  poured  upon  liberty's  altar,  absolute  justice  shall  become  the  universal  law. 

During  the  enactment  of  this  great  tragedy  the  minds  of  men  have  been  so  largely 
engrossed  in  preserving  human  liberty  from  military  aggression,  that  many  questions 
of  high  importance  relating  to  the  economic  prosperity  of  the  American  people  could 
not  receive  fair  consideration. 

Among  these  great  economic  problems  those  involved  in  the  determination  of  the 
ownership  and  operation  of  our  great  public  utilities,  and  particularly  of  our  railroads, 
now  demand  the  first  attention  of  Congress. 

Many  years  of  experience  both  as  a  shipper  and  consumer,  and  as  a  student  of  the 
problem  in  both  our  own  and  foreign  countries,  have  convinced  me  that  there  is  only 
one  way  in  which  the  problem  can  be  justly  solved — and  that  is  by  actual  national 
ownership  as  well  as  governmental  operation.  For  years  the  conviction  has  grown 
upon  me  that  the  ownership  and  operation  by  the  Nation  of  all  those  utilities  neces- 
sary for  the  common  good  is  not  only  a  natural  and  just  function  of  government,  but 
is  absolutely  necessary  to  secure  democracy,  justice,  and  prosperity. 

I  shall  accordingly  discuss  this  question  from  the  standpoint  of  the  largest  economic 
and  political  good  in  the  interest  of  our  entire  citizenship,  and  especially  of  the  Public 
Ownership  League  of  America,  the  members  of  which  body  have  requested  me  to 
represent  them  in  these  hearings.  This  league,  of  which  I  have  the  honor  to  be 
president,  does  not  advocate  Government  ownership  of  private  industries,  but  is 


4  EXTENSION   OF   GOVERNMENT   CONTROL  OF  RAILROADS. 

largely  devoted  to  studying  and  applying  the  practical  problems  of  democratic  gov- 
ernment in  a  broad  and  impartial  manner,  and  sending  its  findings  to  all  parts  of  the 
country.  It  is  especially  interested  in  promoting  Government  ownership  of  those 
resources  and  agencies  which  are  natural  monopolies  and  which  the  Government 
can  own  and  manage  better  for  the  general  public  welfare  than  they  can  be  owned  and 
managed  by  private  interests. 

Up  to  several  years  before  the  war  there  was  some  room  for  doubt  as  to  whether  it 
was  entirely  desirable  and  practicable  at  that  time  for  the  Federal  Government  to 
take  over  the  ownership  and  control  of  the  railways.  Subsequent  events  now  throw 
the  burden  of  proof  on  those  who  claim  that  our  hundreds  of  railway  systems  in  private 
hands  can  not  be  adequately  and  profitably  controlled  by  the  Government  in  the 
public  interest. 

After  over  30  years  of  acquaintance  with  this  problem  as  a  manufacturer  and  shipper, 
as  a  member  of  the  National  House  of  Representatives,  as  a  citizen  interested  in  his 
fellow  men  and  the  ultimate  success  of  democracy,  after  many  months  of  study  of 
Government-owned  railways  in  the  countries  of  Europe  and  documentary  study  of 
their  operation  in  other  countries,  and  after  long  study  and  direct  acquaintance  with 
the  ways  our  railroads  have  debauched  and  swindled  the  American  people  and  Govern- 
ment, as  I  showed  you  when  I  presented  our  case  on  January  29,  1918,  I  have  become 
convinced  that  Government  ownership  of  our  railways  is  as  much  a  necessity  for 
peace,  progress,  and  democracy  in  this  country,  as  is  the  League  of  Nations  a  necessity 
for  peace,  progress  and  democracy  the  world  over. 

In  the  more  extended  argument  and  proof  which  we  wish  to  place  in  the  volume 
of  hearings,  of  which  this  is  but  a  brief  introduction,  and  which  we  should  like  to 
present  in  full  orally  if  there  were  time  at  our  disposal,  we  have  urged  your  favorable 
consideration  of  the  bill  and  the  general  proposition  for  Government  ownership  of 
our  railways  which  was  intrioduced  in  the  House  of  Representatives  by  Mr.  Gary  on 
March  7,  1918. 

We  respectfully  urge  that  this  honorable  committee  report  to  the  Senate  in  favor 
of  actual  Government  ownership  of  our  railways  for  the  following  reasons: 

First,  Government  ownership  of  our  railways  is  desirable;  second,  it  is  practicable; 
and  third,  it  is  the  only  right  solution  of  our  great  reconstruction  problem. 

I.  Government  ownership  and  management  of  our  railways  is  highly  desirable: 

F|rst,  because  it,  like  our  postal  service,  will  be  run  for  the  general  social  welfare, 
not  for  any  particular  group  or  class  of  men. 

Second,  because  the  railways  are  a  natural  monopoly,  and  a  private  monopoly  is 
abhorrent  to  democracy. 

Third,  because  Federal  and  State  Government  regulation  has  ever  failed  of  its 
purpose  and  will  continue  to  do  so  no  matter  how  "stringent"  Congress  attempts  to 
devise  the  regulations. 

Fourth,  because  of  the  tremendous  evils  of  private  ownership  under  either  strict 
regulation  or  even  Government  control  without  ownership. 

Fifth,  because  the  Government  has  shown  that  it  can  handle  the  railroads  success- 
fully, even  under  the  most  adverse  conditions  and  in  the  face  of  a  host  of  unparalleled 
obstacles  which  would  not  have  been  so  well  met  by  the  railroads  even  if  free  from 
all  regulation. 

A  list  of  15  of  the  most  serious  of  these  obstacles  and  a  list  of  25  of  the  most  out- 
standing accomplishments  of  the  Railroad  Administration  we  give  in  the  body  of 
our  argument. 

Sixth,  because  the  two  Directors  General  of  the  Railroad  Administration,  with  the 
consent  of  President  Wilson  as  indicated  by  Mr.  McAdoo,  have  asked  for  a  five-year 
eontinuance  of  Government  control  which  is  practically  an  argument  for  Government 
ownership,  both  Mr.  McAdoo  and  Mr.  Hines  asserting  that  Government  ownership 
would  solve  the  whole  problem  very  simply  and  effectively,  even  if  they  did  not 
personally  favor  it. 

Seventh,  because  the  service  of  the  railroads  to  the  people  can  be  vastly  improved 
over  what  it  has  been  under  private  control,  or  would  be  if  the  regulations  were  changed 
as  requested  by  the  railroads. 

Eighth,  because  all  interests  can  be  better  taken  care  of  as  a  whole  than  under 
private  ownership — those  of  the  investors,  the  employees,  the  executives,  the  ship- 
perSj  the  consumers,  and  the  general  public. 

Ninth,  because  the  people  of  this  country  are  sick  and  tired  of  the  mismanagement 
of  the  great  transportation  systems  of  this  country  in  the  interest  of  a  few  financiers, 
and  demand  a  decided  change,  preferably  Government  ownership. 

As  a  partial  indication  of  the  demand  for  public  ownership  beyond  the  evidences 
you  have  before  you,  we  present  the  following  petitions  from  many  workingmen's 
organizations,  shippers,  merchants,  and  the  general  public,  with  5,000  actual  signa- 


EXTENSION   OF  GOVERNMENT   CONTROL  OF  RAILROADS.  5 

turos,  and  representing  many  thousand  more.  You  can  not  judge  the  unrest  and  the 
public  demand  by  the  press,  since  the  common  people  do  not  have  much  of  a  voice 
in  our  press,  especially  not  as  much  as  have  the  predatory  classes. 

Tenth,  because  corrupt  control  of  many  public  officials  wou^d  be  less  in  evidence 
if  this  railway  business  were  handled  as  is  the  post  office. 

Eleventh,  oecause  there  would  be  more  initiative  and  originality  developed  in 
this  work  under  proper  provisions  directed  thereto  than  exist  under  private 
management. 

Twelfth,  because  the  workers  would  have  a  better  chance  to  live  happy,  efficient, 
and  democratic  lives  than  under  a  system  of  private  control  and  exploitation. 

By  evidence  and  argument  in  the  body  of  our  presentation  attached  hereto  we 
thus  prove  that  public  ownership  of  the  railways  is  desirable. 

II.  Our  second  main  line  of  argument  is  that  it  is  practicable: 

First,  because  it  haa  already  been  demonstrated  that,  under  peace  conditions,  our 
present  Government  organizations  for  railway  control  could  effectively  and  econom- 
ically manage  our  railways  under  a  well  devised  scheme  of  Government  ownership. 

Second,  because  Government  ownership  of  railways  is  in  successful  operation  in 
two-thirds  of  the  countries  of  the  world;  because  no  country  ever  permanently 
abandoned  Government  ownership  of  railways  after  once  instituting  it,  no  matter  how 
poor  some  of  the  plans  of  ownership  and  operation  have  been;  and  because  if  it  can 
prove  a  success  in  those  smaller  countries  with  their  short  hauls,  higher  costs  of  rights 
of  way,  many  provisions  for  sen-ing  the  public  and  safeguarding  the  employees  and 
with  other  financial  handicaps  which  put  them  at  a  disadvantage  in  a  financial  statis- 
tical comparison,  it  can  not  help  being  a  success  here.  In  fact,  it  has  been  well  claimed 
that  it  would  be  easier  to  operate  all  of  the  railroads  of  this  country  as  a  unified  system, 
under  Government  ownership  and  without  the  many  legal  and  other  handicaps  under 
which  railroads  must  struggle  as  private  enterprises,  than  it  is  to  run  one  private 
system  like  the  Rock  Island  or  the  New  Haven. 

Third,  because  as  has  been  abundantly  shown,  and  as  was  pointed  out  by  Senator 
Newlands  as  chairman  of  this  committee  in  1916,  the  Government  has  the  constitu- 
tional right  to  take  over  these  public-service  instruments  of  transportation,  and  the 
cost  can  easily  be  met  by  the  Government  through  the  issue  of  bonds.  Let  us  have  a 
new  issue  of  Liberty  bonds  that  will  free  us  from  the  many  dangers  of  a  great  private 
force  for  evil  in  our  democracy. 

Fourth,  because  Japan  took  over  her  railways  after  the  Ruasian  war  and  has  managed 
them  successfully,  and  because  England  is  about  to  nationalize  her  railways  after  this 
war,  as  stated  by  the  British  minister  of  munitions  on  December  4  last,  and  since 
then  restated  by  the  Prime  Minister. 

Fifth,  because  our  Government  has  successfully  built  the  Panama  Canal  and  built 
and  operated  the  railways  therewith,  and  because  we  have  a  great  force  of  men  in 
the  Army  who  have  handled  the  most  difficult  of  railway  transportation  problems 
in  France  as  a  prime  factor  in  fighting  and  conquering  autocracy  abroad.  When 
these  men  return,  and  with  practical  railway  executives  free  from  partisan  or  selfish 
motives,  instead  of  financiers  in  general  control,  either  as  a  Secretary  of  Transporta- 
tion and  assistants  as  provided  in  Mr.  Gary's  bill,  or  otherwise,  we  can  easily  take 
over  these  railways  and  give  the  world  another  great  example  of  how  democracy  can 
be  made  safe  and  successful  for  a  great  people. 

Sixth,  because  it  would  be  easily  possible  to  continue  the  present  Government 
control  of  the  railroads  until  the  valuations  of  the  properties  now  under  way  by  the 
Interstate  Commerce  Commission  are  complete,  and  thoroughly  matured  plans  for 
purcliasing  linos  can  be  worked  out  by  Congress. 

Seventh,  because  the  interests  now  against  Government  ownership  would  speedily 
come  around  to  it  after  Government  control  and  final  ownership  had  been  decided 
on  with  equity  to  all;  and  especially  v/hen  these  financial  interests  foresaw  that  the 
large  speculative  profits  and  "loot"  were  to  be  eliminated  by  superior  regulation. 
As  with  municipal  utilities,  the  strength  of  the  opposition  to  public  ownership  de- 
pends entirely  on  the  efficiency  of  public  regulation.  Previous  regulation  haa  made 
:<  looting"  of  the  roads  and  public  possible.  The  financiers  still  hope  for  the  huge 
speculation  profits.  Why  not  remove  the  loot  and  secure  public  ownership  of  the 
railways  at  the  same  time,  since  they  inevitably  and  naturally  go  together? 

III.  Our  third  general  proposition  is  that  the  Government  should  take  over  the 
ownership  and  control  of  the  railroads  because  it  is  not  only  desirable  and  practi- 
cable, but  because  it  is  the  only  right  thing  to  do. 

First,  because  the  other  plans  open  to  us  are  all  full  of  danger  of  continued  discord 
and  injustice. 

Second,  because  this  plan  alone  will  avoid  the  many  conflicts  of  authority  between 
State  and  National  authorities  in  this  matter.  We  do  not  favor  in  detail  lion.  W.  J. 


6  EXTENSION   OF   GOVERNMENT   CONTROL  OF  RAILROADS. 

Bryan's  plan  of  dual  Government  ownership,  both  by  the  States  and  by  the  Federal 
Government,  because  in  our  judgment  it  will  intensify  this  conflict  of  authority  and 
needlessly  cause  friction,  rather  than  decrease  conflict  and  friction,  as  thought  by 
Mr.  Bryan.  We  highly  respect  Mr.  Bryan's  motives  and  patriotism,  but  we  believe 
this  plan  impractical. 

Third,  because  Government  ownership  and  control  alone  will  relieve  Congress 
and  our  State  legislatures  of  the  overpowering  burden  of  continual  agitation  of  the 
railway  question.  Peace  is  not  possible  at  any  other  price;  and  the  problems  of 
reconstruction  apart  from  the  railway  question  are  so  great  that  oiu-  legislatures  should 
be  free  to  work  out  the  practices  of  democracy  in  these  many  emergency  lines. 

Fourth,  because  only  through  Government  ownership  can  we  best  correlate  the 
railways  with  our  merchant  marine,  our  canals,  the  post  office,  and  other  public 
utilities,  such  as  the  telegraph,  telephone,  and  cable  lines  which  will  probably  soon 
be  nationalized. 

Fifth,  because  no  other  plan  is  more  than  a  palliative  of  the  railway  disease  and  no 
other  will  meet  the  test  which  President  Wilson  has  set  up  for  wise  and  just  demo- 
cratic legislation,  in  the  following  noble  words: 

''The  days  of  political  and  economic  reconstruction  which  are  ahead  of  us  no  man 
can  now  definitely  assess — but  we  know  this,  that  every  program  must  be  shot  through 
and  through  with  utter  disinterestedness,  that  no  party  must  try  to  serve  itself,  but 
every  party  must  try  to  serve  humanity,  and  that  the  task  is  a  very  practical  one — 
meaning  that  every  program,  every  measure  in  every  program,  must  be  tested  by  this 
questionj  and  this  question  only:  Is  it  just,  is  it  for  the  benefit  of  the  average  man, 
without  influence  or  privilege;  does  it  embody  in  real  fact  the  highest  conception  of 
social  justice  and  of  right  dealing,  without  respect  to  person  or  class  or  particular 
interest?  " 

II.   PUBLIC-OWNERSHIP   BILL. 

The  bill  which  so  far  best  embodies  the  principles  which  we  have  stated  is  H.  R. 
10550,  introduced  by  Mr.  Gary  on  March  7,  1918.  We  do  not  claim  that  it  is  perfect, 
but  that  it  is  surely  a  good  start  for  a  sound  and  permanent  solution.  It  may  not  be 
best  to  have  a  secretary  of  transportation.  We  agree  in  most  particulars  with  the 
plan  presented  by  the  railway  employees.  The  main  provisions  of  this  bill  are  aa 
follows: 

(1)  It  authorizes  the  President  to  take  over  the  rail  and  water  transportation  systems. 

(2)  Compensation  to  owners  is  to  be  determined  by  the  Interstate  Commerce  Com- 
mission, based  on  the  actual  and  legitimate  cost  of  the  railways. 

(3)  Until  compensation  ia  awarded,  5  per  cent  income  on  true  value  as  estimated 
by  the  Interstate  Commerce  Commission  is  to  be  paid. 

4)  A  secretary  of  transportation,  to  be  the  director  of  transportation,  is  provided. 

5)  Employees  are  to  be  permitted  to  form  associations  for  their  mutual  benefit. 

6)  A  minimum  wage  is  to  be  fixed  by  the  secretary  of  transportation. 

7)  $500,000,000  is  appropriated  for  administration  purposes. 

8)  Provisions  for  securing  honest  accounting  are  made. 

9)  Provisions  for  punishing  those  who  wilfully  obstruct  the  Government  operation 
are  suggested. 

Following  this  brief  summary  we  present: 

III.   PLANS   FOR  MEETING   OUR  NATIONAL   RAILWAY   EMERGENCY. 

Two  gigantic  emergencies  face  the  United  States  to-day.  One  is  bound  up  with 
the  problem  of  establishing  a  permanent  peace  for  the  world;  the  other  is  the  problem 
of  reconstruction  at  home.  The  most  important  issue  in  the  problem  of  world  peace  ia 
the  establishment  of  a  League  of  Nations;  the  most  important  issue  in  our  home  emer- 
gency is  that  of  the  democratic  management  and  ownership  of  our  railways. 

Few  indeed  have  failed  to  realize  the  world  emergency  and  the  importance  of  the 
League  of  Nations;  we  have  fought  for  this  and  nothing  less  will  serve  us  as  the  reward 
for  entering  the  world  war.  We  are  not  all  so  well  acquainted,  however,  with  the 
importance  of  a  satisfactory  solution  of  the  railway  problem  as  the  keynote  of 
national  reconstruction. 

There  is  a  great  danger  that  the  world  emergency  in  the  establishment  of  a  League 
of  Nations  for  international  justice  and  a  permanent  peace  will  overshadow  and 
obscure  our  greatest  reconstruction  problem  here  at  home.  While  our  vision  is  turned 
to  Europe  and  our  President's  noble  efforts  toward  achieving  an  instrument  for  perma- 
nent peace  in  the  world,  many  of  our  citizens  are  overlooking  the  work  of  powerful 
private  interests  here  that  are  attempting  to  secure  an  undemocratic  and  selfish 
solution  of  the  railway  problem.  There  is  great  work  abroad  for  our  President  and  all 


EXTENSION   OF   GOVERNMENT   CONTKOL  OF  EAILEOADS.  7 

who  can  help  him  in  the  international  emergency;  there  is  pressing  work  for  all  of 
us  to  do  here  at  home  in  meeting  the  national  emergency. 

Is  it  necessary  for  us  to  bring  forward  arguments  to  prove  that  the  proper  solution 
of  the  railroad  problem  is  the  greatest  reconstruction  issue  before  America?  In  the 
past  the  railroads  have  been  the  greatest  source  of  economic  loss  to  the  whole  people, 
the  greatest  political  evil,  and  the  single  greatest  deterrent  to  loyal  democratic 
progress  that  has  existed.  Multitudes  of  facts  from  all  skies  and  in  the  great  volumes 
of  "hearings"  before  the  Interstate  Commerce  Commission  and  the  committees  of 
Congress  are  available  for  the  overwhelming  proof  of  this  conclusion.  The  President 
has  already  voiced  the  tremendous  importance  of  the  railway  problem,  and  we  may 
pass  on  to  the  several  suggestions  for  the  solution  of  the  great  difficulty  without 
presentation  here  of  all  of  the  supporting  facts.  Billions  upon  billions  of  dollars  are 
involved  in  the  solution  of  this  railway  issue;  the  most  gigantic  railway  and  financial 
interests  are  determined  to  lead  and  force  Congress  to  solve  this  problem  as  they 
selfishly  desire.  To  solve  the  problem  aright  now  means  a  gain  of  probably  50  to  100 
years  of  progress  in  our  democratic  growth;  the  success  of  private  interests  during 
the  Nation's  present  obsession  with  the  world  issue  will  make  it  increasingly  difficult 
for  America  to  secure  that  democracy  which  she  hopes  to  hold  up  as  an  example  for 
all  the  world. 

The  most  important  railroads  have  been  taken  over  by  the  Government  as  a  war 
measure.  This  governmental  control  was  to  continue  up  to  21  months  after  the  final 
declaration  of  peace  if  need  be.  Former  Director  General  McAdoo  and  the  present 
Director  General  Hines  have  urged  that  either  the  period  of  control  be  extended  until 
the  first  of  January,  1924,  in  order  that  Government  operation  might  be  tested  under 
normal  peace  conditions,  and  that  time  for  sound  permanent  legislation  may  be 
obtained;  or  that  the  roads  be  almost  immediately  relinquished  to  their  directors. 
President  Wilson  has  come  out  for  no  one  plan  of  solution  of  the  problem  and  has  left 
the  entire  matter  to  Congress.  The  great  problem  is  thus  before  Congress  and  the 
country. 

In  the  thorough  solution  of  any  problem  it  is  essential  that  a  relatively  large  number 
of  possible  solutions  be  suggested,  and  impartially  and  critically  examined.  As  er- 

Eected,  many  peace  plans  were  proposed  at  lie  Peace  Congress.  This  has  been  -a 
leasing,  not  an  evil.  After  thorough  criticism  of  these  various  plans,  the  final  solution 
is  a  far  better  one  than  if  only  one  or  tvro  plans  from  one  or  two  nations  had  been 
presented.  For  the  solution  of  our  national  railway  emergency  there  are  at  least  four 
leading  types  of  solution-.  One  of  these,  or  a  combination  of  two  or  more  of  these, 
will  be,  in  general,  the  final  solution  determined  upon  by  Congress  and  the  people. 
The  choice  of  some  of  these  solutions  would  be  disastrous  to  the  American  people  and 
the  hope  of  present-day  democracy.  One  or  two  of  the  plans  contain  solutions  in 
thorough  accord  with  democracy  and  our  general  evolution  as  a  free  people. 

We  can  not  take  the  space  here  to  examine  exhaustively  «ach  of  these  hypotheses. 
Such  a  course  would  mean  a  presentation  of  the  advantages  and  disadvantages  of 
each  tentative  solution  proposed,  and  a  conclusion  as  to  the  best  possible  solution. 
This  work  has  been  somewhat  exhaustively  done  and  we  shall  present  here  only  the 
general  arguments  and  supporting  data  which  clearly  lead  to  a  rejection  of  all  but  one 
of  the  conclusions. 

The  one  common  fault  of  all  the  plans  so  far  submitted  to  the  consideration  of  the 
committee  and  the  public,  with  the  exception  of  those  of  the  Directors  General  of 
the  railroads,  is  that  they  are  devised  to  benefit  more  a  particular  class  than  the  whole 
public.  Even  those  for  some  f orm  of  Government  ownership  and  control  have  favored 
one  group  more  than  another.  The  railway  employees,  for  instance,  want  two-thirds 
of  their  proposed  board  of  directors  for  the  national  railway  system  selected  from  their 
group.  Former  Secretary  of  State  Bryan's  so-called  "dual  plan"  in  our  judgment 
would  plunge  the  country  into  the  old  "States-rights"  fight  again.  The  plans  of  the 
associations  of  security-holders  would  give  them  special  advantages.  The  plan  of  the 
railway  executives  considers  principally  the  desires  of  the  great  financial  corporations 
which  have  a  private  ruther  than  a  public  interest  in  the  railways. 

Another  common  fault  of  the  plans  that  do  not  provide  for  outright  Government 
ownership  or  continued  Government  control,  is  that  they  fail  to  estimate  properly 
the  immense  difficul ties  involved  in  going  back  to  private  control.  The  railroads 
were  in  such  a  deplorable  condition  before  the  war,  the  needs  of  the  reconstruction 
period  for  the  attention  of  Congress  in  other  direct  ions  are  so  tremendous,  the  necessity 
of  connecting  up  the  railways  with  the  mercantile  marine  and  our  whole  system  of 
water  transportation  is  so  impc-mt  i  ve — the  great  probh-n  of  "  unscrambling ''  <  lu>  roads 
after  this  period  of  unified  Government  control  and  operation  is  so  difficult,  if  not 
impossible — the  dangers  of  sending  many  roads  into  receiverships,  bringing  on  an 
industrial  panic,  and  doing  injustice  to  the  owners  of  the  roads,  are  so  real  and  impend- 


8  EXTENSION   OF   GOVERNMENT   CONTROL   OF  RAILROADS. 

ing — the  desirability  of  getting  a  permanent  solution  through  congressional  legislation 
that  will  set  the  railway  problem  aside  and  leave  Congress  free  to  act  for  the  country 
along  other  lines  is  so  much  a  national  emergency,  that  we  can  not  and  dare  not  go 
backward  to  private  control  at  this  time.  The  only  path  is  forward  along  the  natural 
lines  of  evolution  of  a  service  that,  like  the  postal  system,  unites  all  parts  of  the  Nation, 
penetrates  all  parts,  and  necessarily  must  course  through  all  parts  like  the  blood  in 
the  circulatory  system  of  our  bodies. 

These  various" plans  which  have  been  proposed,  including  two  or  three  which  we 
have  tried  atgreat  expense  and  found  wanting,  are  as  follows: 

I.  Private  ownership  and  management  with  no  Government  regulation. 

I T.  Private  ownership  and  management  with  little  Government  regulation. 

III.  Private  ownership  and  management  with  much  Government  regulation. 

IV.  Private  ownership  with  exclusive  Government  operation. 

V.  Government  ownership  with  private  operation. 

VI.  Government  ownership  and  Government  operation. 

We  shall  not  take  the  time  here  to  analyze  each  of  these  plans,  going  into  the  details 
of  the  advantages  and  disadvantages  of  each  with  the  presentation  of  evidence  and  a 
final  comparison  of  all  to  determine  impartially  which  is  best  for  the  country.  We 
shall  present  only  the  sufficient  arguments  and  supporting  data  which  clearly  lead  us 
to  a  rejection  of  all  but  one  of  the  plans.  In  view  of  the  fact  that  the  railway  valu- 
ations by  the  Interstate  Commerce  Commission  will  probably  not  be  complete  until 
about  January,  1923;  that  the  problem  is  the  most  complex  and  gigantic  ever  pre- 
sented to  Congress  for  solution,  and  in  view  of  the  pressing  importance  of  a  sound 
and  permanent  solution,  and  for  other  reasons,  too  great  care  and  too  much  thorough 
study  and  scientific  investigation  can  not  be  given  to  this  emergency. 

Congress  is  not  obliged,  however,  to  solve  this  problem  permanently  at  once,  nor 
even  within  21  months  after  peace  has  been  declared.  By  a  simple  amendment,  as 
suggested  by  former  Director  General  McAdoo,  the  time  may  be  extended  to  give 
opportunity  for  the  valuation  necessary  to  right  action  to  be  completed  and  a  sound 
study  of  the  problem  made.  The  prewar  legislation  of  Congress  has  been  so  injurious 
and  unjust  to  the  people  at  large,  and  the  entire  basis  of  competition  instead  of  coop- 
eration has  been  so  false  to  the  real  principles  of  national  transportation,  that  the 
present  need  and  demand  is  for  an  entirely  new  plan  and  spirit  of  national  railway 
ownership  and  management. 

Plans  1  and  2:  This  country  has  for  many  years  carried  on  the  most  expensive  ex- 
periment and  test  of  private  ownership  and  management  with  little  governmental 
supervision  ever  witnessed.  It  has  found  that  private  ownership  and  management 
of  railways  is  impossible  and  disastrous.  Such  plans  would  to-day  wreck  our  very 
democracy.  No  one  advocates  them.  All  agree  that  we  must  practically  take  over 
the  railways  to  secure  their  operation  for  the  benefit  of  the  whole  people. 

Plan  3:  Even  plan  3,  which  provides  for  private  ownership  and  management  with 
a  great  deal  of  governmental  regulation,  supposedly  in  the  interest  of  the  whole  peo- 
ple, has  so  far  proved  a  failure.  This  is  the  plan  we  were  pursuing  immediately  pre- 
ceding the  war.  As  President  Wilson  said,  this  plan  had  nothing  helpful  or  affirma- 
tive in  it.  "  It  would  be  a  disservice  alike  to  the  country  and  the  owners  of  the 
railroads,"  he  said,  "to  return  to  the  old  conditions  unmodified.  Those,"  he  said, 
"  are  conditions  of  restraint  without  development.  There  is  nothing  affirmative  or 
helpful  about  them."  All  parties  are  agreed  with  the  President  on  this  matter.  In 
fact,  the  period  of  Government  control  to  win  the  war  has  made  such  changes  in 
unifying  and  "scrambling"  the  roads  that  to  restore  them  precisely  to  the  prewar 
status  is  utterly  impossible.  _  It  can  hardly  be  approximated.  President  Wilson 
and  the  former  and  present  Directors  General  of  the  Railways  have  indeed  suggested 
the  return  of  the  roads  to  private  control  very  soon,  but  only  as  an  alternative  to  a 
plan  which  they  consider  very  much  better,  the  latter  two  declaring  for  a  five-year 
extension  of  Government  control.  All  view  euch  a  return  to  prewar  conditions  as  a 
calamity;  and  only  an  utter  failure  of  Congress  to  act  could  thus  turn  the  wheels  of 
democratic  progress  backward.  We  have  faith  that  something  affirmative  and  helpful 
can  be  done.  Let  us  pass  on  to  examine  it. 

The  different  plans  for  strong  governmental  control,  such  as  those  of  the  railway 
executives  and  tne  majority  of  the  Interstate  Commerce  Commission,  have  the  fatal 
difficulty  of  ultimate  failure  to  regulate  the  railroads.  The  best-laid  plans  of  the  Na- 
tion which  have  been  and  could  be  adopted  would  speedily  prove  inadequate,  and  the 
old  inequalities,  injustices,  and  undemocratic  developments  would  reappear.  The 
operation  of  railroads  is  a  natural  governmental  function,  in  the  public  interest,  to  be 
operated  by  the  public  for  the  public.  They  can  not  be  owned  by  a  class,  operated 
by  a  class,  for  a  class.  To  attempt  to  struggle  along  with  Government  regulation  is 
like  struggling  to  make  water  run  up  hill.  A  natural  Government  monopoly  of  this 
size  and  character  must  be  run  by  and  for  the  people  and  to  do  this  the  people  must 
own  it  as  they  now  do  the  Postal  Service,  and,  in  most  other  countries,  the  railroads. 


EXTENSION   OF   GOVERNMENT   CONTROL  OF  RAILROADS.  9 

It  is  very  significant  that  the  Government  of  Great  Britain,  after  struggling  for  years 
unsuccessfully  in  attempting  to  regulate  the  railroads  has,  through  the  Minister  of 
Munitions,  and  as  late  as  December  4,  1918,  publicly  announced  that  it  was  the  Gov- 
ernment's policy  to  nationalize  the  railways.  "That  great  step,"  he  said,  "it  has 
at  last  decided  to  take." 

England  has  also  considered  plan  5,  that  of  providing  Government  ownership  with 
private  management  in  the  hands  of  one  chartered  company.  But  this  plan  prac- 
tically means  and  loads  to  Government  ownership.  It  is  an  experiment  that  is  un- 
necessary to  take.  All  the  initiative  that  has  been  displayed  in  private  railroading 
can  be  secured  and  all  the  necessary  stimulus  to  workers  can  be  obtained,  without 
recourse  to  the  old  means  of  providing  competing  lines.  All  the  principal  advantages 
of  the  old  can  be  procured  without  its  disadvantages  and  the  new  stimuli  to  superior 
and  honest  service  in  the  public  interest  under  public  ownership  can  be  made  even 
stronger  and  of  a  higher  order  than  under  the  old  largely  corrupt  system  of  private 
ownership  and  operation.  We  are  opposed  to  Government  guarantees  of  income  to 
1  to  18  private  companies.  Ownership  and  operation  by  the  public  is  the  only  method 
open  for  avoiding  the  evils  of  Government  guarantees  to  private  corporations. 

IV.      SUCCESS     OF     PRESENT     GOVERNMENT      CONTROL     UNDER     THE     RAILROAD 

ADMINISTRATION . 

The  various  representatives  of  the  railways  and  many  publicity  bureaus  and  news- 
papers controlled  by  the  great  corporations  have  made  such  an  effort  to  discredit  the 
the  present  Government  control,  in  the  fear  that  the  five-year  extension  will  be 
granted  and  Government  ownership  result,  as  President  Willard  and  others  suggested, 
that  we  desire  to  show  the  great  obstacles  met  and  overcome,  the  actual  accomplish- 
ments, and  the  needed  reforms  recommended,  which  only  Government  ownership 
and  operation  can  safely  secure.  Of  course,  the  present  system  is  neither  Govern- 
ment ownership  nor  operation. 

OBSTACLES,    ACCOMPLISHMENTS,    AND    REFORMS    OF    THE    RAILROAD    ADMINISTRATION. 

A.  Great  obstacles  successfully  met  by  the  Railroad  Administration  during  the  first 
year  of  Government  control: 

1.  Worst  winter  in  the  history  of  railroads. 

2.  War  demands — -army  of  millions  of  men  to  be  transported  to  the  cantonments, 
seaboard,  and  back. 

3.  Plague  of  influenza,  playing  havoc  with  workmen,  18,000  employees  sick  at  one 
time  in  New  England  alone. 

4.  Greatest  burden  of  both  freight  and  passenger  traffic  in  railroad  history. 

5.  Alarming  coal  shortage  (248  mines  idle  because  of  lack  of  cars). 

6.  Terrible  freight  congestion  (180,000  loaded  freight  cars  on  the  eastern  lines  alone; 
many  freight  embargoes). 

7.  Putting  in  and  training  inexperienced  men. 

8.  Drafting  of  thousands  of  employees. 

9.  Chaos  in  railroad  management,  poor  handling  of  cars,  locomotives,  etc. 

10.  Great  amount  of  overtime  pay  necessary  to  get  repair  work  done.     Had  also 
but  six  months  of  increased  rates  to  meet  12  months  of  increased  pay. 

11.  Inability  to  get  new  cars  and  locomotives  because  of  need  for  them  overseas, 
and  our  shortage  of  men. 

12.  No  serviceable  locomotives  in  reserve  (at  beginning  of  this  winter,  however, 
1.000  in  reserve). 

13.  More  or  less  opposition  on  the  part  of  railway  executives  to  successful  Govern- 
ment control  for  fear  it  would  become  permanent. 

14.  Necessity  of  handling  freight  and  making  repairs  at  any  cost. 

15.  No  complete  valuation  of  the  railroads  on  which  to  compute  rates,  make  a 
budget,  etc. 

B.  Some  noteworthy  accomplishments  of  the  Railroad  Administration  in  one  year  or 
less: 

1.  Eliminated  wasteful  competition. 

2.  Eliminated  the  congestion  which  paralyzed  the  railroads  at  the  beginning  of 
the  war. 

3.  Arranged  for  a  better  movement  of  freight  in  many  ways. 

4.  Improved  locomotives  and  got  a  surplus  of  1,000  by  this  winter  when  there  *yas 
"  not  a  single  serviceable  car  in  reserve ' '  when  the  administration  took  over  the  roads. 

5.  Distributed  care  and  locomotives  to  where  they  were  needed. 

6.  Obtained  the  cooperation  of  the  railroad  employees  in  increasing  the  hours  of 
labor  to  meet  the  shortage.     Has  the  indorsement  of  the  employees  for  continued  con- 
trol and  Government  ownership,  as  shown  in  the  preceding  hearings. 

117546°— 19 2 


10  EXTENSION   OF   GOVERNMENT   CONTROL  OF  RAILROADS. 

7.  Increased  the  shipments  of  coal,  starting  with  a  decrease  for  January,  1918, 
ovor  the  same  month  for  the  previous  year,  up  to  741,666  cars,  or  about  73,183,300 
tons  this  year. 

8.  Got  food  to  the  allies  in  enormous  quantities  after  it  had  been  held  up  by  the 
eastern  congestion,  due  to  private  competing  management. 

9.  Developed  a  far  better  use  of  freight  and  passenger  terminals. 

10.  Rerouted  traffic  to  eliminate  circuitous  routes,  resulting  in  a  great  increase  in 
ton  miles  and  a  decrease  in  train  miles,  which  is  the  essence  of  national  railroading, 
impossible  under  private  control. 

11.  Pooled  repair  shops,  thus  increasing  their  efficiency  and  reducing  the  average 
distance  locomotives  had  to  be  sent  for  repairs. 

12.  Consolidated  ticket  offices  and  made  tickets  good  on  any  route  between  cer- 
tain points,  with  a  great  saving  and  convenience  to  the  public. 

13.  Made  an  annual  saving  by  these  means  of  more  than  $85.000,000  and  probably 
a  clear  $100,000,000.     These  savings  would  be  greatly  increased  in  peace  times,  and 
the  cost  of  no  system  of  public  ownership  and  operation  could  equal  the  wastes  and 
public  losses  of  social  service  under  the  old  private  ownership  of  this  most  important 
function  of  Government  transportation. 

14.  Provided  many  improvements  and  reforms  in  working  conditions,  decreases  in 
the  hours  of  labor,  and  increases  in  pay. 

15.  Furnished  transportation,  both  freight  and  passenger,  at  less,  or  not  more,  of  an 
increase  than  obtained  for  other  important  commodities. 

16.  Cooperated  closely  with  other  important  Government  activities  such  as  the 
Emergency  Fleet  Corporation,  the  telegraph,  the  telephone  systems,  etc. 

17.  Made  great  gains  in  decreasing  losses  by  theft  of  property  from  the  roads.     In 
1914  carriers  reported  to  the  Interstate  Commerce  Commission  losses  by  theft  of  over 
$10,000,000.    The  Railroad  Administration  has  been  active  in  preventing  these  and 
secured  10,530  arrests  for  thefts  and  over  8,000  convictions. 

18.  Organized  a  bureau  for  suggestions  and  complaints  which  has  been  of  great 
value  in  improving  the  railway  service  nationally.   Decresed  accidents  to  a  minimum. 

19.  Secured  great  economies  of  labor  and  money  in  more  unified  management,  such 
as  rerouting,  common  use  of  terminals,  elimination  of  needless  passenger  trains,  the 
common  use  of  freight  cars,  introduction  of  the  "sailing  day, "  and  others. 

20.  Greatly  improved  the  statistical  records  and  bookkeeping,  which  will  for  the 
first  time  in  history  insure  that  the  facts  about  railroads  in  this  country  will  be  ascer- 
tained.    Saved  millions  by  eliminating  an  army  of  "legal  advisers." 

21.  Established  the  "permit  system,  "thus  preventing  the  loading  of  traffic  without 
assurance  that  it  can  be  disposed  of  at  its  destination. 

22.  Standardized  the  equipment  to  a  considerable  degree,  thus  making  for  great 
economy  and  transfer  from  one  railroad  to  another. 

23.  Established  a  uniform  freight  classification. 

24.  Introduced  a  system  of  heavy  loads  on  cars. 

25.  Unified  many  competing  and  individualistic  lines  into  one  organized  system 
for  the  whole  country. 

It  has  been  claimed  that  the  railways  might  have  formed  some  kind  of  general 
organization  by  which  they  would  have  been  a,s  successful  as  the  Railroad  Adminis- 
tration if  they  were  also  freed  from  restricting  laws.  These  accomplishments  would 
be  impossible  outside  of  Government  control  and  the  Government  dare  not  lessen 
its  restrictions  but  must  make  them  so  strong  and  sweeping  that  the  result  is  iittle  dif- 
ferent from  Government  ownership,  except  that  the  people  suffer  disadvantages  and 
losses  which  would  be  prevented  by  Government  ownership. 

C.  Reforms  which  should  be  continued  under  peace  conditions  (as  recommended  by  the 
Railroad  Administration): 

"Many  of  the  changes  in  railroad  operation  inaugurated  during  the  period  of  the  last 
year  should  prove  of  permanent  value  and  should  continue,  if  possible,  whatever 
form  of  control  is  decided  upon  for  the  railroads.  Such  reforms  include — 

1.  The  maintenance  of  the  permit  system,  which  I  have  just  described,  so  as  to 
control  the  traffic  at  its  source. 

2.  The  maintenance  of  heavy  loads  for  cars. 

3.  The  pooling  of  repair  shops. 

4.  The  elimination  of  circuitous  routes — freight  routes;  circuitous,  round-about 
routes. 

5.  The  unification  of  terminals. 

6.  The  maintenance  of  the  "sailing-day  plan." 

7.  The  consolidation  of  ticket  offices. 

8.  The  utilization  of  universal  mileage  tickets. 

9.  The  standardization  of  equipment. 

10.  The  maintenance  of  uniform  freight  classification  introduced  by  the  United 
States  Railroad  Administration. 


EXTENSION   OF   GOVERNMENT   CONTROL   OF   RAILROADS.  11 

11.  The  maintenance  of  common  time  tables  between  important  points. 

12.  The  maintenance  of  high  demurrage  rates  and  uniform  rules. 

13.  The  establishment  of  through  waybilling  of  freight  from  points  of  origin  to 
destination. 

14.  Rendering  unnecessary  the  rebelling  by  connecting  or  intermediate  routes. 

15.  The  elimination  of  the  old  practice  of  mileage  or  per  diem  rental  for  the  use 
of  freight  or  passenger  cars  of  one  carrier  by  another. 

16.  The  simplification  of  the  old  practice  of  apportioning  interline  passenger  revenue. 

17.  The  utilization  of  water  routes  for  the  relief  of  crowded  rail  lines. 

The  members  of  our  league  do  not  see  how  it  is  possible  to  secure  these  and  other 
necessary  improvements  in  railway  service  with  justice  to  all  without  Government 
ownership  and  operation.  Not  one  of  the  many  plans  for  private  ownership  and 
control  submitted  to  you  by  interested  parties  will  permanently  and  economically 
secure  these  reforms  one-tenth  so  surely  and  as  well  for  our  people  as  Government 
ownership  and  operation.  Why  longer  avoid  the  inevitable  issue?  Why  let  out-grown 
economic  theories  of  competition  thwart  our  handling  of  this  railway  emergency? 

Having  reviewed  the  conditions  which  led  to  public  control  of  the  railroads,  the 
obstacles  which  the  Government  was  obliged  to  lace,  the  results  achieved  notwith- 
standing these  obstacles,  and  the  various  solutions  proposed ,  I  now  come  to  the  most 
important  phase  of  the  question,  Who  shall  own  and  operate  our  railways?  Private 
interests  for  private  profit  only,  or  the  American  people,  through  the  agency  of  their 
Government,  as  a  natural  public  function  necessary  to  promote  democracy,  justice, 
and  the  general  welfare? 

I  will  endeavor  to  answer  this  question  from  the  standpoint  of  democracy  and  the 
common  good  of  the  American  people. 

PART  II.— BASIC  PRINCIPLES  OF  PUBLIC  OWNERSHIP. 

V.    THE    BASIC   PRINCIPLES    OF   PUBLIC   OWNERSHIP    AND   A   SUBVEY   Of  ITS   WORLD 

ACCOMPLISHMENT. 

"This  country  and  all  that  is  within  it  belongs  to  the  people  who  inhabit  it.". 
(Abraham  Lincoln.) 

"Real  public  ownership  is  tlie  very  essence  of  democracy.  Instead  o/  debasing 
human  nature  by  conflict  and  corruption  and  dividing  men  into  mailers  and  mastered, 
it  brings  men  together  in  a  union  of  interest,  accords  to  all  the  share  in  the  development 
arising  from  the  exercise  of  judgment  and  discretion  in  the  control  of  business  affairs, 
and  affords  the  cooperative  conditions  necessary  for  the  highest  traits  of  conscience 
and  character."  (Prof.  Frank  Parsons,  Boston  Law  School,  in  The  City  for  the 
People.) 

The  principles  underlying  public  ownership  may  be  divided  into  two  classes.  One 
is  connected  with  ideal  government  in  ita  relation  to  civil  liberty  and  equality  of 
opportunity.  This  we  call  "democracy"  and  "political  justice."  The  other 
relates  to  providing  those  material  things  and  services  necessary  to  our  welfare  and 
happiness  which  we  call  "economic  justice."  Both  are  closely  interwoven,  and 
together  they  form  the  sum  of  human  justice  which  we  know  as ' '  social  justice, ' '  a  term 
inclusive  of  all  the  relations  of  mankind  in  an  ideal  commonwealth. 

Liberty  and  equality  are  essential  principles  of  justice  as  determined  by  social 
inheritance;  but  to  analyze  correctly  social  relations  a  broad  comprehension  of  eco- 
nomic conditions  is  necessary.  It  was  this  desire  to  study  questions  of  justice  and 
civil  liberty  which  led  the  author  many  years  ago  to  seek  information  concerning  the 
great  public  utilities  and  their  relation  to  national  life  and  public  welfare. 

Constant  and  intimate  relations  for  a  number  of  years  with  the  railway,  telegraph, 
telephone,  express,  and  variousother  public  utilities  had  brought  valuable  experiences 
to  me  in  my  business  relationsas  manufacturer  and  shipper.  Investigation*  carried  on 
while  a  Member  of  the  National  House  of  Representatives  added  to  this  experience 
facts  of  an  official  nature  which  increased  this  interest.  Repeated  visits  abroad  gave 
opportunity  to  investigate  personally  the  conditions  under  which  public  utilities 
were  being  operated  in  foreign  lands  under  both  public  and  private  ownership.  The 
last  visit  occupied  14  months  in  the  year  1912-13,  during  which  time  14  countries 
were  visited.  These,  together  with  those  investigated  during  other  trips,  included 
Austria,  Bavaria,  Belgium,  Denmark,  Egypt,  England,  France,  Greece,  Holland, 
Italy,  Norway,  Prussia,  Saxony,  Scotland,  Sweden,  and  Switzerland. 

RAPID   SPREAD   OF   PUBLIC   OWNERSHIP. 

AH  of  these  countries,  16  in  number,  publicly  own  and  operate  their  telephone  and 
telegraph  systems  as  parts  of  the  postal  service.  Ten  publicly  own  and  operate  their 
entire  railway  systems,  four  own  them  in  part,  while  only  two  (England  and  Scotland) 


12  EXTENSION   OF   GOVERNMENT   CONTROL   OF  RAILROADS. 

have  been  operating  their  railroads  entirely  under  private  ownsership.  Since  the 
outbreak  of  the  present  war,  the  government  of  these  two  countries  has  taken  pos- 
session of  the  railroads  also,  and  without  doubt  will  assume  actual  and  permanent 
government  ownership  in  the  near  future.  Russia,  Japan,  Australia,  and  New  Zea- 
land also  publicly  own  and  operate  their  entire  railroad  systems,  while  China,  Mexico, 
and  the  countries  of  South  America  own  theirs  in  whole  or  in  part.  All  of  these  own 
their  telephone  and  telegraph  systems  as  well,  and  many  countries  own  the  majority 
of  their  municipal  utilities.  The  United  States  of  America  is  the  only  Nation  in  the 
world  which  does  not  publicly  own  and  operate  its  telephone  and  telegraph  systems 
as  government  functions,  and  will  have  the  unenviable  distinction  of  being  the  only 
civilized  country  controlled  by  special  privilege  should  she  alone  decide  to  continue 
this  intolerable  system  of  "invisible  government." 

This  tendency  to  be  ruled  by  private  monopoly  led  Ambassador  Bryce  in  his  Ameri- 
can Commonwealth  to  declare:  "In  England  we  have  the  form  of  monarchy  with  the 
spirit  of  democracy;  while  in  America  there  exists  the  form  of  democracy  with  the 
spirit  and  essence  of  monarchy. ''  This  statement  is  unfortunately  too  true,  due  to 
the  fact  that  in  England  as  well  as  in  all  the  other  countries  of  Europe,  public  utilities 
are  largely  owned  and  operated  by  the  people,  their  operation  being  considered  neces- 
sary and  natural  governmental  functions.  Those  few  minor  undertakings  which  are 
allowed  to  be  privately  owned  in  these  countries  are  considered  as  public  trusts  which 
are  required  to  give  impartial  service  and  make  full  accounting  to  the  people  of  their 
stewardship. 

PUBLIC   OWNERSHIP  A   NATURAL   GOVERNMENT  FUNCTION  AND   NECESSARY  TO   SECURE 

DEMOCRACY. 

In  America,  on  the  other  hand,  the  private  monopolies  which  own  and  control  the 
great  public  utilities  have  practically  become  the  financial  and  political  masters  of 
the  people,  for,  by  means  of  unjust  rates  made  possible  by  fictitious  capitalization, 
dishonest  financing,  and  illegal  practices,  they  have  amassed  great  wealth  and  have 
grown  so  powerful  as  largely  to  control  law  and  government.  By  secret  rates  and 
rebates  they  have  crushed  out  competition  and  obtained  monopoly.  By  interlock- 
ing directorates  and  combination  of  capital  they  have  controlled  or  defied  law  and 
evaded  regulation.  Through  control  of  much  of  the  press  and  other  means  of  public 
education'they  have  influenced  public  opinion,  largely  controlling  nominations  and 
elections  to  public  office,  and  ultimately  directing  the  making  and  administration 
of  law. 

When  a  few  men  thus  control  the  great  functions  of  government,  that  equality  of 
opportunity  which  is  fundamental  to  democracy  can  not  exist.  There  can  be  no 
function  of  government  more  natural  and  necessary  to  the  promotion  of  general  pros- 
perity and  happiness  than  the  public  ownership  and  operation  of  all  those  agencies 
which  contribute  to  the  public  good  and  which  by  their  nature  are  monopolies,  and 
these  include  not  only  the  public  utilities  devised  by  man,  but  many  of  those  vast 
resources  of  nature  which  the  Almighty  placed  above  and  below  the  earth  for  the 
service  of  all  his  creatures. 

Since  our  National  Constitution  was  written  a  century  and  a  quarter  ago,  human 
genius  has  harnessed  nearly  all  the  forces  of  nature  in  so  many  ways  that  there  is 
scarcely  a  function  in  our  daily  life  that  is  not  performed  by  them  nor  a  condition  of 
life  which  they  have  not  revolutionized.  Then,  we  could  speak  only  within  the  radius 
of  our  voices;  now,  we  speak  from  ocean  to  ocean.  Then  courier,  stage,  or  slow  sailing 
boat  carried  our  written  messages;  now,  a  few  seconds  suffice  to  encircle  the  globe. 
Then,  our  persons  and  the  products  of  our  farms  and  factories  traveled  on  land  at  the 
rate  of  20  miles  a  day;  now,  our  fastest  trains  exceed  a  thousand. 

As  the  Creator  of  the  Universe  gave  to  all  mankind  from  the  foundation  of  the  world 
to  the  end  of  time,  the  air,  the  water,  the  sunlight,  the  heat,  the  treasures  of  the  earth 
with  all  their  powers  and  possibilities,  so  it  devolves  upon  the  city,  the  State  and  the 
Nation  to  preserve  inviolate  to  its  citizens  the  widest  and  freest  use  of  these  gifts  for 
the  common  welfare.  This  can  not  be  done  where  private  monopoly  exists,  for  one 
man  or  a  group  of  men  usurp  those  rights  which  belong  to  all. 

LIBERTY — EQUALITY — FRATERNITY. 

When  first  traveling  in  Europe  in  1875  to  study  their  social  institutions  as  well  as 
the  masterpieces  of  art  and  architecture,  and  the  monuments  of  antiquity,  I  observed 
with  interest  over  the  entrances  to  public  buildings  and  churches  in  France  the 
words  "Liberty,  equality,  fraternity,"  the  impressive  motto  of  the  French  revolution 
forced  upon  the  world  by  the  tyranny  of  blinded  wealth:  and  when  extending  these 


EXTENSION   OF   GOVERNMENT   CONTROL   OF  RAILROADS.  13 

travels  to  other  countries  it  wag  interesting  to  observe  the  extent  to  which  applied 
democracy  was  enjoyed  by  the  people. 

In  order  to  secure  indisputable  evidence  of  the  success  of  public  ownership  with 
which  to  disprove  misstatements  continually  being  made  in  the  press  and  on  the  plat- 
form, I  procured  during  the  travels  referred  to,  a  large  and  valuable  collection  of 
official  reports  and  data  of  an  absolute  authoritative  nature,  besides  personally  taking 
over  500  photographs  of  the  various  utilities  in  operation  in  many  countries.  To 
this  collection  I  added  several  hundred  photographs  taken  by  official  photographers. 

This  interesting  collection  contains  street  railway  tickets  from  many  cities  and 
countries  of  Europe,  with  fares  of  but  1  cent  for  moderate  distances,  and  averaging 
approximately  2  cents  for  all  distances.  These  gave  superior  service  from  the  receipts 
of  which  each  city  made  a  large  profit  applied  for  reducing  taxation  or  swelling  the 
fund  of  the  "common  good.'' 

In  England  the  very  highest  quality  of  coal  gas  was  being  supplied  under  municipal 
ownership,  in  some  instances  at  rates  as  low  as  25  cents  per  1,000  cubic  feet.  And 
even  at  this  rate  a  profit  was  made,  owing  to  honest  and  efficient  administration. 

Electricity  was  everywhere  supplied  at  rates  lower  than  those  charged  by  private 
companies  in  America,  notwithstanding  the  fact  that  in  most  of  these  countries  there 
is  but  little  water  power. 

Local  telephone  calls  were  2  cents,  and  phones  in  homes  and  offices  cost  less  than 
half  the  American  rate. 

Checking  of  baggage  or  parcels  for  storage  at  the  railway  stations  was  only  2  cents, 
as  against  10  cents  in  the  "United  States.  And  all  these  public  utilities  were  efficiently 
administered  and  gave  a  profit  to  the  Government.  That  these  rates  to  the  general 
public  have  not  been  established  at  the  expense  of  the  employees  we  demonstrate 
below. 

PUBLIC   OWNERSHIP  BRINGS  JUSTICE   TO  LABOR. 

The  rule  prevailing  in  both  municipal  and  national  utilities  in  countries  where 
public  ownership  exists,  is  that  labor  shall  be  paid  not  less  than  the  full  wages  accorded 
by  private  companies  for  like  service,  nor  less  than  the  amount  fixed  by  labor  unions. 
In  many  countries  a  minimum  wage  law  exists  for  government  employees  upon  the 
railroads,  telegraph,  telephone  systems,  etc.,  and  this  rule  exists  in  principle  under 
municipal  ownership  in  nearly  all  cities. 

In  Great  Britain  wages  paid  municipal  employees  on  the  tramways,  gas  and  electric 
utilities  were  about  $1.75  per  day  before  the  war,  skilled  labor  being  higher.  And 
these  wages,  have,  of  course,  risen  rapidly  during  the  war.  When  it  is  remembered 
that  the  families  of  employees  get  their  street  car  tickets,  gas  and  other  services  at 
about  one-third  the  cost  in  American  cities,  their  real  wages,  when  measured  in  public 
service  to  their  families,  will  be  seen  to  be  much  higher  than  those  paid  in  America. 

For  instance,  a  motorman  or  other  workman  can  buy  100  rides  of  the  average  length 
as  in  the  United  States,  or  175  rides  of  nearly  2  miles  each  for  one  day's  wage,  whereas 
the  American  employee  will  receive  but  50  rides  for  the  same  money.  One  day's 
wage  in  England  and  Scotland  will  buy  on  the  average  over  4,000  cubic  feet  of  gas  of 
the  best  quality,  double  the  amount  derived  in  America  for  the  same  work,  although 
the  wages  are  higher  as  measured  in  money. 

Strikes  and  labor  trouble  of  any  kind  are  so  extremely  rare  as  to  be  almost  unknown 
under  public  ownership,  for  the  public  has  no  interest  nor  desire  to  treat  its  own 
"citizen  employees"  otherwise  than  with  generosity  and  justice.  It  desires  to 
receive  the  best  service  and  is  glad  to  give  a  full  equivalent.  The  sole  consideration 
under  public  ownership  is  to  secure  to  everyone  perfect  service  under  just  conditions, 
while  under  private  ownership  as  practiced  in  America  the  sole  motive  is  to  obtain 
private  profit;  and  even  where  good  service  is  given  the  motive  remains  the  same. 
One  of  the  greatest  complaints  against  the  Railroad  Administration  here  in  America 
by  railroad  executives  has  been  that  the  employees  have  been  helped  to  a  decent 
standard  of  living  by  higher  wages  and  better  working  conditions. 

Under  public  ownership,  laws  and  agreements  are  entered  into  providing  for  con- 
ciliation, arbitration,  etc.,  by  which  all  questions  are  usually  settled  quickly  and 
amicably.  Employees  being  partners  in  the  business  and  enjoying  the  public  service 
for  themselves  and  their  families  have  no  motive  to  destroy  that  which  tends  to  their 
own  welfare.  The  facts  already  given  would  seem  sufficient  to  show  that  a  degree  of 
social  justice  greater  than  is  known  elsewhere  prevails  where  public  ownership  exists, 
for  the  public  as  consumers  secure  the  necessities  of  life  upon  terms  far  more  just 
than  could  be  otherwise  possible,  while  employees  receive  better  wages  and  better 
treatment  as  well. 

It  is  highly  significant  that  the  employees  of  our  railways  are  practically  unanimous 
for  Government  ownership  and  willing  to  do  anything  to  help  make  it  a  permanent 
success. 


14  EXTENSION   OF   GOVERNMENT   CONTROL  OF   RAILROADS. 

PUBLIC   OWNERSHIP   IN    ACCORD   WITH   OUR   CONSTITUTION. 

The  greatest  statesmen  and  constitutional  lawyers  of  every  democratic  country 
agree  in  the  view  that  it  is  not  only  the  right  but  the  duty  of  Government — national, 
state,  and  municipal — to  perform  every  function  which  is  necessary  to  protect  and 
extend  the  rights,  opportunities,  and  happiness  of  its  citizens.  In  fact,  this  was  the 
supreme  purpose  of  the  founders  of  our  Republic,  and  in  order  to  secure  and  protect 
these  rights  they  placed  at  the  head  of  our  National  Constitution  the  following 
preamble: 

"\Ve,  the  people  of  the  United  States,  in  order  to  form  a  more  perfect  union,  estab- 
lish justice,  insure  domestic  tranquillity,  provide  for  the  common  defense,  promote 
the  general  welfare,  and  secure  the  blessings  of  liberty  to  ourselves  and  to  our  pos- 
terity, do  ordain  and  establish  this  Constitution  for  the  United  States  of  America." 

It  must  be  noted  that  they  sought  to  provide  and  secure  to  posterity— the  people  of 
to-day — all  the  blessings  which  accompany^  civil  liberty.  They  hoped  to  secure  for 
our  people  domestic  tranquility,  which,  is  impossible  with  private  railway  control. 
The  other  purposes  are  incapable  of  being  realized  under  the  private  ownership  of 
our  natural  monopoly  of  transportation.  Should  our  present  lawmaking  power 
refuse  in  this  great  crisis  to  provide,  in  letter  as  well  as  in  spirit,  progressive  legislation 
necessary  to  carry  out  the  fundamental  principles  of  the  Constitution,  there  is  left  an 
appeal  to  the  citizenship  which  our  martyred  President,  Abraham  Lincoln,  stated 
in  the  following  words: 

"This  country  and  all  its  institutions  belong  to  the  people  who  inhabit  it,  and 
whenever  they  shall  tire  of  their  existing  Government  they  have  the  constitutional 
right  to  amend  it,  or  the  revolutionary  right  to  overthrow  it." 

If,  then,  this  principle  that  the  will  of  the  people  should  rule  has  found  its  advo- 
cates among  makers  of  laws  and  constitutions  throughout  the  centuries  when  the 
conditions  of  society  were  more  simple  than  now,  and  when  nations  have  owned  and 
operated  their  own  highways,  post  offices,  etc.,  is  it  not  much  more  natural,  neces- 
sary, and  just  that  these  same  principles  of  public  ownership  should  be  extended 
under  the  present  and  more  complicated  conditions  of  society,  when  the  various 
forces  of  nature  are  imperatively  called  upon  to  render  service?  Justice  replies, 
"Yes." 

We  are  living  in  an  era  of  evolution  and  revolution.  Democracy  must  triumph 
over  greed.  That  "invisible  government"  of  private  monopoly  which  sets  at  nought 
the  will  of  the  people  through  the  combined  power  of  the  railways,  telegraph,  tele- 
phone, gas,  electricity,  street  railways,  and  other  public  utilities,  must  be  done  away 
with  in  the  name  of  liberty. 

VI.    SOME   TYPICAL   EXAMPLES    OF   PUBLIC    OWNERSHIP. 

To  make  clear  by  example  the  workings  of  public  ownership  under  conditions  that 
fully  prove  that  our  public  ownership  of  railways  would  be  even  more  successful  than 
those  systems  abroad,  we  present  for  your  consideration  the  difficulties  and  triumphs 
under  public  ownership  in  Switzerland.  Our  great  country  can  profit  by  the  many 
years  of  successful  experimentation  with  public  ownership  abroad,  and  does  not  have 
the  handicaps  of  pioneering,  short  hauls,  great  cost  per  mile  in  construction,  etc. 

HOW    THE    RIGHTS    OP   THE    PEOPLE    WERE    SAFEGUARDED    FROM    THE    BEGINNING    AND 
HOW   FEDERAL   OWNERSHIP   OF   THE    SWISS   RAILWAYS   WAS   ACQUIRED. 

From  the  building  of  the  first  railroad  in  Switzerland,  the  question  whether  railroads 
should  be  constructed  and  operated  by  the  state  or  by  private  corporations  has  been 
agitated.  The  first  railroad  built  in  Switzerland — the  road  from  Zurich  to  Baden 
(23  kilometers),  opened  on  the  9th  of  August,  1847 — was  built  by  a  private  company. 
But  the  people  were  distrustful  of  the  power  which  the  private  companies  might 
ultimately  acquire  in  the  control  of  the  Government,  and  the  Federal  council  two 
years  later  at  the  request  of  the  citizens  consulted  a  number  of  railway  and  other 
experts,  among  whom  were  the  well-known  English  engineers,  Stephenson  and 
Swinbourne.  These  latter  experts  advised  the  construction  of  the  railways  by  the 
State  and  recommended  the  establishment  of  a  complete  national  system.  A  number 
of  the  other  experts  consulted,  whose  environment  had  been  that  of  the  private 
financial  interests,  advised  in  favor  of  construction  by  companies  under  state  super- 
vision with  a  guaranty  of  interest  by  the  State,  while  other  favored  public  ownership 
both  by  the  Federal  Government  and  Cantons. 

On  the  7th  of  April.  1851,  a  special  commission  of  the  national  council  itself  made 
an  official  recommendation  providing  for  the  public  ownership  and  operation  of  the 


EXTENSION   OF   GOVERNMENT   CONTROL   OF   RAILROADS.  15 

railways  under  joint  government  control  (national  and  state).  The  national  council 
itself  refused  to  follow  the  vote  of  this  commission,  and  in  July,  1852,  declared  iu 
favor  of  private  ownership.  The  rights  of  the  people,  however,  were  thoroughly 
safeguarded  both  in  the  Federal  and  cantonal  law  by  abundant  provisions  limiting 
the  rates  of  charge  and  profits  and  providing  that  construction  and  operation  should 
be  carried  out  with  honesty,  efficiency,  and  economy,  and  that  the  Government  at 
all  times  should  have  access  to  the  accounts  and  records.  The  franchises,  also  con- 
templating the  ultimate  taking  over  of  the  properties  by  the  authorities  either  coa- 
tonal  or  federal  on  just  terms,  whenever  the  public  decided  either  that  the  profits 
of  tho  companies  were  too  great,  or  that  public  management  would  insure  them  oetter 
service,  compelled  the  companies  to  honestly  advance  construction  and  operation, 
to  give  efficient  management,  and  perform  the  service  at  just  ratea;  otherwise  the 
nation  would  exercise  its  rights  and  acquire  the  roads  for  government  operation. 

Under  these  conditions  the  public  interest  was  safeguarded  and  the  Swiss  people 
did  not  find  it  necessary  to  take  over  the  railroads  for  several  years,  since  the  stringent 
provisions  of  the  law  demanding  honest  and  efficient  management,  secured  good  service 
at  just  rates.  It  was  found,  nowever,  that  the  companies  were  gaining  political 
influence  with  the  national  government  which,  though  not  highly  dangerous  at  the 
time,  would  grow  in  extent  and  become  a  menace  to  national  security.  Accord- 
ingly, pressure  was  brought  to  bear  on  the  government  to  purchase  a  controlling  influ- 
ence and  interest  in  the  stock  of  the  railways,  which  it  did,  and  under  this  and  other 
systems  acquired  financial  interests  in  the  privately  owned  railways. 

The  Government  had  by. the  year  1890  acquired  quite  a  large  control  by  purchase  of 
the  majority  of  stock  in  some  of  the  most  important  systems.  As  the  terms  for  which 
many  of  the  franchises  had  been  given  to  the  companies  would  expire  in  the  spring  of 
1898,  the  Swiss  people  invoked  the  rights  which  they  had  long  enjoyed  through  the 
system  of  direct  legislation,  and  by  a  petition  demanded  that  the  council  (the  mem- 
bers of  which  were  already  favorable  to  this  action),  should  frame  a  bill  providing  for 
the  taking  over  of  the  most  important  railway  systems  and  submit  this  as  a  referendum 
to  be  voted  upon  at  the  forthcoming  election. 

The  salient  features  of  this  bill  were  that  the  Government  should  purchase  and  take 
over  at  the  expiration  of  the  franchises,  the  five  most  important  railway  systems, 
which  were  the  Jura-Sim ploa,  the  Centrale,  the  Nord-Est,  the  Union  Swiase,  and  the 
Goihard,  a  length  of  line  that  approximated  1,700  English  miles.  The  bill  thus  sub- 


practical  basis.  An  administrative  council  of  11  members  was  provided  who  were  to 
keep  constantly  in  touch  with  the  various  cantonal  governments  and  give  careful 
attention  to  the  needs  of  the  people. 

WHY  THE    SWISS  TOOK   OVER  THEIE   RAILWAYS   UNDER   PUBLIC   OWNERSHIP. 

In  connection  with  the  bill  which  the  national  council  had  drafted  at  the  request  of 
the  voters  to  provide  for  public  ownership  of  the  railroads,  the  national  council  issued 
a  message  embodying  the  reasons  which  compelled  it  to  recommend  the  passage  of  the 
bill.  Among  these  reasons  were  the  following: 

1.  That  the  unification  of  the  systems  under  one  head  would  reduce  the  expense  of 
operation,  by  doing  away  with  useless  duplication. 

2.  Federal  operation  of  the  lines  being  conducted  by  a  single  administration  could 
provide  a  better  trained  administrative  body  than  a  large  number  of  private  companies. 

3.  Since  Prussia,  Austria,  and  other  States  were  enjoying  the  earnings  from  their 
publicly  owned  railroads  which  would  soon  place  them  out  of  debt,  the  Swiss  railroads 
if  privately  owned  could  not  compete  with  them  in  rates  and  thus  higher  charges  must 
be  paid  by  the  Swiss  people. 

The  Federal  council  also  made  it  clear  in  this  interesting  message  that  continued 
private  ownership  was  a  menace  to  the  political  life  of  Switzerland,  because  the 
profita  accruing  from  the  roads  left  the  country  in  the  form  of  dividends  to  foreigners 
rather  than  contributing  to  the  extension  and  improvement  of  their  own  railways. 

5.  Higher  wages,  reasonable  hours,  and  better  living  conditions  would  be  enjoyed 
by  the  railway  employees  under  government  ownership.  lrpon  this  subject  the 
m.^sage  also  says:  "  Private  companies,  as  a  rule,  pay  high  salaries  for  the  performance 
of  certain  functions,  and  to  make  up  for  these  expenditures  they  economize  upon 
wages  of  common  employees,  who,  since  they  are  very  numerous,  occasion  the  great 
bulk  of  expenditures.' 


16 


EXTENSION   OF   GOVERNMENT   CONTROL   OF  RAILROADS. 


PUBLIC  OWNERSHIP  SUBMITTED  BY  REFERENDUM  TO  THE  POPULAR  VOTE  AND  ACCEPTED 
BY   AN    OVERWHELMING   MAJORITY. 

The  vote  on  the  proposition,  for  the  national  acquisition  of  the  railway  system  was 
taken  on  the  date  fixed  by  law,  February  20,  1898.  It  called  out  an  unusual  number 
of  voters.  Out  of  734,000  citizens  having  the  right  to  vote,  570,000,  in  round  numbers, 
exercised  that  right.  This  is  the  largest  proportion  of  votes  ever  cast.  The  purchase 
law  was  accepted  by  a  majority  of  over  200,000,  the  votes  standing  386,634  for  to  182,718 
against.  ^The  result  showed  an  overwhelming  majority  in  favor  of  national  ownership. 

My  investigations  of  the  practical  workings  of  this  _  national  system  of  railways 
extending  over  30  years  lead  to  very  decided  convictions  respecting  the  efficiency 
of  this  system  in  comparison  with  our  own  deplorable  lack  of  system.  Permit  me  to 
give  further  details  respecting  rates,  quality  of  service,  etc. 

swiss  "ABONNEMENT"  TICKETS  AND  REGULAR  FARES  AND  QUALITY  OF  THE  VARIOUS 

CLASSES    OF   SERVICE. 

Besides  the  season  ticket  for  six  weeks  referred  to,  the  Swiss  Federal  railroad  admin- 
istration issued  until  after  the  beginning  of  the  present  war  "Abonnement"  (special 
eeason)  tickets,  good  for  unlimited  travel  on  all  the  Federal  lines  (1,701  miles)  and 
on  all  the  steamers  of  the  Swiss  lakes  (Geneva,  Zurich,  Lucern,  Neuchatel,  etc.): 


First  class. 

Second  class. 

Third  class. 

Two  weeks  

$13.50 

S9.65 

S6.80 

One  month  

21.25 

14.50 

10  60 

Three  months  

52.11 

36.67 

26.05 

Six  months  

81.56 

56.94 

40.53 

One  year  

129.  31 

90.71 

64.66 

Respecting  the  quality  of  service  of  the  various  classes:  The  native  Swiss  ride 
almost  entirely  (except  the  wealthiest)  in  the  third  class.  It  is  clean,  sanitary,  and 
comfortable,  but  lacks  upholstery.  The  second  class  is  used  largely  by  the  wealthy 
Swiss  and  foreign  tourists,  including  Americans,  except  the  very  wealthy,  and  in  some 
cases  those  who  desire  to  appear  wealthy.  It  is  practically  equal  to  the  first  class 
in  America.  The  first  class  is  but  very  little  different  from  the  second,  and  in  many 
cases  the  first  and  second  are  precisely  the  same,  the  only  thing  which  distinguishes 
them  being  the  label.  Both  classes  are  often  in  the  same  car,  divided  with  a  partition, 
but  the  "poster"  showing  the  class  is  often  changed  as  circumstances  require.  The 
first  class  is  usually  used  by  the  very  wealthy  or  sometimes  those  who  desire  to  appear 
so;  and  by  some  foreigners  who  have  not  learned  all  the  conditions;  often  by  Americans 
with  women  in  the  party.  But  the  services  of  the  first  and  second  classes  are  usually 
identical.  I  usually  used  the  second  class,  as  is  seen  by  the  ticket  I  exhibit.  There 
were  always  reputable,  intelligent  and  delightful  people  to  meet,  and  the  atmosphere 
seemed  entirely  democratic. 

For  regular  journeys  the  rates  per  mile  one  way  were  as  follows:  First  class,  3.2  cents; 
second  class,  2  cents;  third  class,  1.6  cents. 

The  three  classes  averaged  2.3  cents  per  mile  for  single  journeys,  and  for  round  trips 
about  1.5  cents  per  mile  each  way.  Fifty-five  pounds  of  hand  luggage  are  allowed  to 
be  carried  free  in  the  passenger  cars. 

As  has  been  already  mentioned,  the  Swiss  railways,  owing  to  the  country  being 
almost  entirely  mountainous,  and  abounding  with  many  chasms,  requiring  bridges 
at  dizzy  heights,  and  construction  of  countless  tunnels  being  necessary,  the  actual 
cost  of  construction  of  the  road  is  many  times  greater  per  mile  than  in  any  other  coun- 
try. Marvelous  engineering  feats  have  been  accomplished  in  the  construction  of 
these  roads,  which  have  never  been  executed  elsewhere  in  the  world.  Among  these 
are  wonderful  "corkscrew"  tunnels  in  which  the  trains,  after  crossing  a  chasm  or 
canyon  over  a  very  high  bridge,  move  around  in  spirals  like  those  of  a  corkscrew  or 
coiled  springs,  in  order  to  make  grades  that  will  permit  their  emerging  200  or  500 
feet  or  more  at  a  point  directly  below  or  above  the  entrance,  depending  on  the  direc- 
tion in  which  they  are  going.  One  of  the  most  famous  of  these  is  a  double  corkscrew, 
shaped  like  the  figure  8.  Of  the  well-known  tunnels,  the  St.  Gothard,  is  9  miles 
and  the  Simplon  (double  track)  is  12  miles  in  length,  the  two  costing  $21,000,000. 
There  are  over  1,000  tunnels  on  the  Swiss  Federal  system. 


EXTENSION   OF   GOVERNMENT   CONTROL   OF   RAILROADS. 


17 


THE   HIGHER   COST   OF  THE   SWISS   RAILWAYS,    PURCHASED    BY   THE    GOVERNMENT    FOR 
$175,000,000,    AND  THE   LOWER  FARE. 

With  the  unparalleled  difficulties  of  construction  in  the  Alps,  the  actual  cost  of 
the  Swiss  railways  must  have  exceeded  five  times  that  of  the  average  of  the  American 
roads,  and  had  they  been  promoted  and  financed  under  American  methods  the  rates 
of  fare  would  naturally  be  five  times  as  great  as  they  now  are.  But  under  the  honest 
building  and  management  that  the  Swiss  law  required,  the  fares  for  regular  trips 
average  practically  the  same-as  in  America,  while  the  "season  "  tickets  are  only  a  frac- 
tion of  the  charges  made  in  America. 

When  the  Government  finally  took  the  roads  over,  about  1,700  miles,  it  paid  for 
them  approximately  $199,000,000,  or  $117,000  per  mile  on  the  average,  including  a 
large  mileage  of  tunnels  and  bridges  averaging  $1,000,000  per  mile. 

A  suggestive  account  of  the  purchase  of  these  lines  by  the  Swiss  Government  was 
prepared  for  the  Mus6e  Social  of  Paris,  by  its  Swiss  correspondent,  Mr.  Horace  Micheli, 
a  translation  of  which  may  be  found  in  Volume  III,  No.  6,  December,  1898,  of  the 
American  Economic  Association.  Attention  here  is  called  to  the  protection  the 
Swiss  people  enjoyed  in  taking  over  their  railroads  under  public  ownership  through 
the  constitutional  and  democratic  right  of  "direct  legislation,"  with  the  initiative 
and  referendum  "  in  these  proceedings. 

The  data  following  will  set  before  you  a  number  of  the  important  facts  relating 
to  public  railway  ownership  in  the  principal  countries  of  the  world,  Switzerland 
included. 


VII.    PUBLIC    RAILWAY    OWNERSHIP    IN    FOREIGN     COUNTRIES. 

MILEAGE. 


PUBLIC    AND    PRIVATE 


The  following  table  shows  the  number  of  miles  of  State  and  private  railways  in 
31  countries,  except  in  those  States  where  the  statistics  for  both  systems  are  mixed 
(given  together).  The  United  States  stands  with  China,  Spain,  Egypt,  and  the  United 
Kingdom  in  not  having  public  railways,  with  the  exception  of  the  50  miles  at  Panama 
and  a  few  other  very  short  lines.  In  France  the  Government  owns  all  the  roadbeds, 
and  the  system  is  far  more  of  a  unified  one  than  in  this  country. 

Few  persons  who  talk  glibly  against  Government  ownership  of  railways  realize 
that  27  countries  now  have  government  ownership  of  from  50  miles  to  all  the  railways 
of  the  country.  Germany  is  first  with  35,000  miles,  and  Russia  next,  with  about 
34,000.  India  has  over  29,000  miles,  and  Austria-Hungary  over  23,000  miles. 

One  of  the  greatest  organized  forces  which  the  allies  had  to  combat  was  the  unified 
railway  systems  of  the  central  powers.  One  of  the  greatest  sources  of  weakness  and 
of  great  losses  of  men  of  both  England  and  America  was  their  decentralized,  indi- 
vidualistic systems  which,  after  a  period  of  futile  efforta  to  meet  the  war  emergency, 
had  to  be  taken  over  by  the  government  in  each  country. 

According  to  these  statistics,  there  are  approximately  585,384  miles  of  private 
road,  and  189,226  miles  of  State  railroad  in  the  world,  a  percentage  of  about  32.3  per 
cent,  or  approximately  one-third.  If  we  leave  the  260,000  miles  of  private  mileage 
in  the  United  States  out  of  the  calculations  we  have  a  percentage  of  58  of  nationalized 
railways,  and  if  the  mileage  of  the  United  Kingdom  is  also  omitted,  more  than  three- 
fifths  of  the  mileage  of  the  29  following  countries  is  owned  by  the  State.  ^  And  this 
does  not  include  private  railways  operated  by  the  government  as  in  Austria,  nor  the 
road  beds  owned  by  the  State  in  France. 

Mileage  and  niflnagcment  of  the  railways  of  the  world. 


Country. 

Management. 

Total 

!:::ir.:.,' 

in?lucled 
in  tables. 

State 
mileage 
included. 

A  Igeria 

Mixed  

2,871 

1.803 

Argentina      .                   .     .          

19,722 

3.490 

Austria  * 

State... 

14,217 

11,987 

Belgium  

do  

2,715 

2,706 

Brazil 

Mixed  

10,821 

6.727 

Bulgaria  -.  .           .     .                      .             

State  

1.200 

1.200 

Canada  

Private  

29.304 

1,742 

Chile 

Mixed      

5.020 

3,236 

China  

Private  

606 

Cuba                                                                       

..  ..do  

2,580 

130 

TJmiinftrV 

State... 

1,219 

1.219 

117546°— 19- 


IS  EXTENSION  OF   GOVERNMENT  CONTROL  OF   RAILROADS. 

Mileage  and  tnanagement  of  the  railways  of  the  world—  Continued. 


Country, 

Management. 

Total 

mileage 
included 
in  tables 

State 
mileage 
included. 

Egypt  

State  

1,486 

Prance                                                                

Mixed.....  

25  314 

5  626 

Germany  .               

State  

38  154 

35  95' 

Holland   

Mixed  

2,063 

1,  233 

Hungary  1               .             ..                           „ 

State  

13  332 

11  229 

India  

do  

35  285 

29  317 

Italy  

do  

8,481 

8,481 

Japan                      .                      .                   

do  

5  473 

5  473 

Mexico       

do  

6,  193 

6  193 

Norway                                             .                .  . 

do       ... 

1  917 

1  635 

Portugal                    .  .              

Mixed  

1  521 

713 

Koumania 

State 

2  205 

2  205 

Russia  

Mixed  

40^  036 

33'i>28 

Siam                                  

State     

506 

506 

Spain  .  .  .      .        

Private  .  .  . 

9  076 

Sweden  

P.M  

8,-806 

2  P64 

Switzerland                     .                   

S.M       

3  155 

1  701 

Union  of  South  Africa  

State  

8  2S1 

8  281 

United  Kingdom  

Private  

23,691 

United  States  .  .  . 

...do... 

260.000 

»50 

1  Private  railways  largely  operated  by  the  State. 


Panama  R.  R. 


RELATIVE    TRANSPORTATION    EFFICIENCY    OF   PRIVATE    AND   PUBLIC    OWNERSHIP. 

A  leading  test  of  private  and  public  ownership  of  railways  is  efficiency  of  freight 
transportation  in  number  of  tons  of  freight  carried  per  ton  of  car  capacity.  Public 
ownership,  as  «hown  in  the  following  authoritative  table,  is  far  more  efficient  than 
private  ownership  in  actual  success  m  getting  the  work  of  a  country  done.  Great 
Britain  and  the  United  States  stand  near  the  'bottom  of  the  list.  England  has  suffered 
as  much  as  has  the  United  States  from  private  ownership,  and,  from  present  indica- 
tions, will  probably  have  State  ownership  and  control  before  our  legislators  devise  a 
permanent  solution  for  our  railway  problem.  The  table  equalizes  the  conditions 
existing  in  the  United  States,  with  its  long  hauls  and  consequent  lower  terminal  cost, 
and  in  other  ^countries,  with  short  hauls  and  multiplied  uses  of  the  terminals.  The 
average  haul  for  Sweden  is  thus  less  than  one-fifth  that  of  the  United  States  and  its 
terminal  facilities  are  burdened  with  five  times  the  cost.  In  this  and  practically 
every  test  possible,  our  country  would  be  at  an  advantage  over  other  countries  in 
instituting  public  ownership. 

Number  of  tons  carried  per  ton  of  car  capacity  for  the  countries  of  the  world. 


Country. 

Ownership. 

Date. 

Ton- 
milos 
moved 
per  ton 
of  car 
capacity. 

Rank  in 
efficiency. 

Government  

1913-14 

8,347 

1 

New  South  Wales 

do.  ..                                   

1915 

6,203 

2 

Austria 

...do.... 

1913 

5,107 

3 

Hungary                      

...do  

1912 

4,902 

4 

..    do  

1913 

4,123 

Germany                     

...do  

1913 

3,962 

6 

do  

1913 

3,553 

7 

Holland  .                                  .        ... 

Mixed  

1913 

3,476 

8 

United  States 

Private  companies  

1914 

3,  169 

9 

Belgium  

Government  
Private  companies  

1912 
1912 

3,052 
2,957 

10 
11 

Sweden 

Mixed  

1912 

.2,912 

12 

Canada  

Mexico 

Private  companies  
Government  

1915 
1913 

2,623 
2,099 

13 

14 

Great  Britain 

Private  companies  

1913 

'809 

15 

Included  600,000 -private  cars.    (United  States  is  ninth  in  efficiency.) 


EXTENSION   OF   GOVERNMENT   CONTROL  OF   RAILROADS. 


19 


ECONOMICAL   USE   OF   ROMJNG    STOCK. 

Another  test  is  the  efficient  use  of  the  capital  stock  owned  by  the  railways.  Our 
country  has  the  longest  average  hauls  between  terminals,  and  thus  ha«  to  make  fewer 
stops  to  load  and  unload,  and  yet  the  cars  are  so  inefficiently  managed  in  comparison 
with  nationalized  systems  that  it  stands  low  in  the  list  in 'the  group  of  nations  and 
below  practically  all  the  publicly-owned  systems. 

Daily  movement  of  freight  cars. 


Country. 

Ownership. 

Average 
haul  in 
miles. 

Tons  car- 
ried per 
ton  of  car 
capacity. 

Rank  In 
efficiency. 

Japan  

GnvArrrmfint  .  . 

94.10 

99.3 

1 

Switzerland  

do  

46.81 

8S.  1 

2 

Austria     

do  

65.63 

77.8 

3 

New  South  Wales  

do  

38.58 

71.6 

4 

Hungary    

da  

71.80 

69.3 

5 

Germany  

....do... 

62.04 

63.9 

6 

Sweden     

.  .  .do        

4").  70 

63.6 

7 

Holland  

Mixed       

56.00 

62.6 

8 

Government 

52.36 

5S  3 

9 

France    

Private  companies  

77.60 

88.2 

10 

New  Zealand       

Government  

39.4 

11 

Private  companies      ...      .... 

1  25.  00 

33.2 

12 

Southern  Australia  

C!  o  vemment  

117.  64 

30.  1 

13 

Italy  

do  

24.1 

14 

United  States  .  .         .  . 

Private  companies   .   . 

256  00 

12.2 

15 

Canada  

do  '.  

247.00 

10.6 

16 

Mexico 

rjnvArnTnftiit          ,    ,    .    , 

210.00 

10.0 

17 

i  Company  haul;  national  haul  estimated  at  40  miles.    (United  States  fifteenth.) 
VIII.    STANDARDS   BY    WHICH   TO   TEST   RAILWAY   EFFICIENCY. 

If  our  time  were  not  so  limited  we  should  present  for  your  consideration  a  fuller  state- 
ment of  definite  standards  by  which  to  judge  the  efficiency  of  public  and  private 
ownership  and  the  comparative  standing  of  our  country  before  the  war  with  other 
countries.  We  believe  that  the  evidence  shows  that  this  standing  in  efficiency  and 
service  to  the  public  will  be  very  little  changed  by  any  regulatory  devices  which 
Congress  may  provide — that  the  only  thing  to  do  ia  to  purchase  these  roads  and  provide 
for  them  efficient  administration,  a  very  easy  and  simple  tiling  to  do  for  such  a  natural 
monopoly  at  the  present  time  compared  with  the  futile  effort  to  regulate  and  make 
efficient  what  can  not  be  regulated  nor  made  efficient — private  railway  ownership. 

In  an  exceptionable  address  given  by  Hon.  David  J.  Lewis,  who  has  for  a  long  time 
served  the  country  with  high  distinction  as  a  Member  of  Congress  and  in  other  Federal 
capacities,  he  has  set  up  certain  fundamental  tests  of  Government  and  private  owner- 
ship and  has  applied  them  to  the  operation  and  services  of  the  railways  of  the  world. 
Each  of  these  tests  applied  in  a  scientific  and  impartial  manner  demonstrates  beyond 
cavil  that  Government  ownership  is  to-day  far  more  socially  efficient  than  is  private 
ownership.  We  beg  to  present  below  an  otilline  of  his  tests  as  given  before  the  Open 
Forum  of  Baltimore,  May  ]2,  1918,  and  the  reeonstructioa  conference  at  Washington, 
D.  ('.,  January  9  to  11,  1919.  We  respectfully  urge  that  the  entire  report  of  these 
researches  by  Mr.  Lewis  in  this  problem  should  be  obtained  by  this  .committee  and 
printed  in  the  records.  It  is  too  valuable  as  an  aid  in  a  broad,  unbiased  solution  of 
this  greatest  emergency  of  reconstruction  not  to  be  made  available  to  the  conimi 
the  Congress,  and  the  people.  A  very  large  share  of  the  hearings  have  necessarily  been 
with  various  railway  interests.  At  least  one  scientific  study  of  this  problem,  from  the 
standpoint  of  the  whole  people,  should  also  appear. 

Mr.  Lewis's  seven  testa  were  given  substantially  as  follows: 

GOVERNMENT    AND    PRIVATE    RAILWAY    DIRECTION. 

[Examined  with  reference  to  certain  standard  trsts.] 

Test  I.  The  capital  invested. — -(a)  In  respect  to  its  security;  (6)  constancy  of  remunera- 
tion; (c)  amplitude  and  readiness  of  supply. 

Test  II.  Economic  efficiency,  with  respect  to:  (a)  Utilization  of  rolling  stock;  (ft)  rout- 
ing of  freight;  (c)  coordination  of  railway  carriers  with  water  curriers;  (d)  simplicity  of 
rates  and  fiscal  practice. 


20  EXTENSION  OF  GOVERNMENT  CONTROL  OF  RAILROADS. 

Test  III.  Effectiveness  of  personnel  in  respect  to:  (a)  Work  accomplished;  (6)  relative 
exemption  from  accident;  (c)  experience  of  certain  countries  in  this  regard,  before  and 
after  Government  railway  direction. 

Test  IV.  Social  efficiency. — Government  and  private  direction  examined  with  respect 
to:  (a)  Movement  of  potential  freight  traffic;  (6)  transportation  costs  per  capita  and 
per  ton;  (c)  costs  per  unit  of  service;  (d)  fast  freight,  pick-up,  and  delivery  services. 

Test  V.  Social  efficiency. — Government  and  private  ownership  examined  with 
respect  to:  (a)  Movement  of  potential  passenger  traffic;  (6)  cost  per  unit  of  service;  (c) 
adjustments  of  rates  to  services;  (d)  effect  rate  reductions;  (e)  popular  passenger  rates; 
(/)  feeding  the  train,  sleeping  facilities,  frequency  of  service. 

Test  VI.  Railway  development,  with  respect  to:  (a)  Extension;  (6)  its  exercise  to 
prevent  industrial  depression;  (c)  to  utilize  waterways. 

Test  VII.  Government  and  private  direction  with  respect  to:  (a)  The  functioning 
of  the  State  itself;  (6)  military  exigencies;  (c)  equilibrium  of  its  active  power  with 
organized  agencies  of  individuals;  ( d)  railway  strikes;  (e)  political  problems;  (/)  method 
of  acquisition;  and  (g)  method  of  management. 

Summary. — Government  or  private  direction — results  of  preceding  tests  applied  as 
standards. 

We  may  be  permitted  to  quote  here  the  concluding  paragraph  of  this  comprehensive 
and  factual,  not  theoretical,  investigation. 

"Railway  transportation  is  naturally  national  in  its  characteristics.  It  is  govern- 
mental in  its  requirement  of  the  sovereign  power  of  eminent  domain,  in  its  use  of  the 
taxing  power  to  levy  taxes,  discriminating  taxes,  to  secure  the  necessary  revenue.  It 
is  national  in  the  form  of  organization  it  must  take  for  effective  management,  the 
president,,  the  board  of  directors,  the  stockholders'  meetings,  to  formulate  its  laws, 
and  their  majority  rule.  The  railway  organization  clearly  simulates  the  government 
with  its  President,  his  Cabinet,  the  Congress  and  its  majority  rule.  I  say  it  is  national 
in  its  characteristics,  not  individualistic.  And  to  its  other  national  characteristics 
national  ownership  should  be  added.  Give  their  owners  first  the  '  'just  compensation  " 
of  the  Constitution,  their  managers  the  oath  it  prescribed  for  dutiful  service,  and  set 
the  flag  over  every  depot  in  the  land.  Only  in  this  way  can  our  railways  be  com- 
pletely devoted  to  the  accomplishments  of  broad  national  policies  conceived  with  a 
view  to  the  maximum  service  of  our  country  in  peace  and  in  war." 

PART  III.— RAILWAY  EXPLOITATION  UNDER  PRIVATE  OWNERSHIP. 

IX.  A  SURVEY  OP  THE  PROMOTION,  FINANCING,  AND  ADMINISTRATION  OF  AMERICAN 
RAILROADS,  AS  DISCLOSED  BY  INVESTIGATIONS  OF  THE  INTERSTATE  COMMERCE 
COMMISSION  RESPECTING  FIVE  IMPORTANT  RAILROAD  SYSTEMS  COVERING  APPROXI- 
MATELY ONE-THIRD  OF  THE  ENTIRE  MILEAGE  OF  THE  UNITED  STATES,  AND  SUM- 
MARIZED FROM  THESE  INVESTIGATIONS  IN  THE  OFFICIAL  GOVERNMENT  REPORTS 

AS  FOLLOWS:  NEW  YORK,  NEW  HAVEN  &  HARTFORD  RAILWAY  co.  (REPORT  NO.  6569, 

JULY  11,  1914);  THE  LOUISVILLE  &  NASHVILLE  RAILROAD  CO.  (REPORT  NO.  4788, 
FEB.  9,  1915);  THE  CHICAGO,  ROCK  ISLAND  &  PACIFIC  RAILWAY  CO.  (REPORT  NO. 
6834,  JULY  31,  1915);  THE  CINCINNATI,  HAMILTON  &  DAYTON  RAILROAD  CO.,  AND 
THE  PERE  MARQUETTE  RAILROAD  CO.  (REPORT  NO.  6833,  MAR.  13,  1917);  ST.  LOUIS  & 
SAN  FRANCISCO  RAILROAD  CO.  (REPORT  NO.  5933,  JAN.  20,  1914). 

The  promotion,  financing,  and  administration  of  American  railroads  marks  a  dark 
but  impressive  and  instructive  chapter  in  our  country's  history.  It  is  a  record  of  a 
Nation's  shame,  which  can  only  be  fully  atoned  for  when  the  American  people  shall 
have  supplanted  the  "invisible  government"  of  private  financial  autocracy  with 
real  and  living  democracy  by  owning  and  operating  for  the  common  welfare  all  those 
natural  functions  of  government  necessary  for  the  common  good.  Then  only  will 
America  enter  into  her  destiny  and  enjoy  the  fruition  of  the  labors  and  hopes  of  ita 
people.  Further  experimentation  with  regulation  under  the  false  notions  of  the  ne- 
cessity of  private  control,  competition,  initiative,  etc.,  must  be  stopped  in  the  inter- 
est of  the  public  welfare. 

It  is  an  unpleasant  task  to  bring  before  the  public  view  the  manner  in  which  gov- 
ernment, the  press,  and  politics  have  been  corrupted,  and  the  rights  of  citizens,  both 
political  and  economic,  imperiled  or  destroyed;  yet  it  is  due  to  the  American  people 
that  they  know  the  truth,  and  thus  be  able  to  select  and  apply  remedies  that  shall  be 
safe  and  sufficient  for  all  time  to  protect  and  advance  justice  and  democracy. 

As  our  country  now  faces  the  problem  as  to  who  shall  own  and  operate  the  railways 
in  the  future — private  interests  for  private  profit,  or  American  citizens  for  the  common 
good — whether  the  railways  shall  own  them  or  they  own  the  railways — and  since  the 
determination  of  this  question  by  Congress  will  be  largely  based  in  the  manner  in 
which  these  public  agencies  have  been  recently  administered,  it  is  most  important 
that  the  history  of  operations  during  the  past  20  years  be  known.  Accordingly,  the 


EXTENSION   OF   GOVERNMENT   CONTROL   OF  RAILROADS.  21 

facts  of  recent  occurrence  will  be  most  largely  considered;  yet  it  is  also  important  to 
view  the  foundations  laid  many  years  ago  on  which  modern  railroad  financing  and 
administration  in  America  have  been  built.  Accordingly,  the  facts  will  be  stated 
with  but  brief  reference  to  early  railroad  history. 

The  first  era  of  railway  promotion  in  the  United  States  saw  the  building  of  roads 
and  lines  which  afterwards  by  consolidation  were  merged  into  larger  systems,  im- 
portant ones  becoming  the  New  York  Central  &  Hudson  River,  the  Pennsylvania 
lines,  the  Erie,  and  the  Baltimore  &  Ohio.  The  three  first  mentioned  soon  became 
known  as  controllers  of  legislation  and  as  practicing  questionable  methods  of  finance 
and  administration.  The  valuable  book  by  Charles  Francis  Adams,  "Chapters  of 
Erie,"  well  illustrates  the  system  of  exploitation  largely  used  in  those  early  days. 

PROMOTION    OF  THE   PACIFIC    RAILWAYS. 

About  1850  the  Government  decided  to  make  extensive  surveys  for  a  railway 
system  to  be  built  to  the  Pacific  coast.  After  these  surveys  had  been  made  at  the 
expense  of  the  Nation,  a  private  corporation  known  as  the  "Credit  Mobilier"  was 
formed  for  the  purpose  of  privately  controlling  the  vast  system  of  railway  transporta- 
tion planned  by  the  Government.  The  giving  over  of  these  rights  to  this  corporation 
marks  the  first  widely  known  chapter  in  the  dark  history  of  American  promotion  and 
financing  of  railways.  The  history  of  this  event  is  recorded  in  two  congressional 
reports  of  investigations  covering  more  than  1,300  pages.  The  first  known  as  '  'The 
Poland  Report"  (report  No.  77  of  Select  Committee  of  House  of  Representatives  to 
investigate  alleged  ^'Credit  Mobilier,"  Feb.  18,  1873,  42d  Cong.,  2d  sess.);  and  the 
''Wilson"  report,  No.  78,  of  Select  Committee  of  House  of  Representatives  to  make 
inquiry  of  the  affairs  of  the  Union  Pacific  Railroad  Co.,  the  Credit  Mobilier  of  America, 
etc. 

These  reports  disclose  most  important  facts  relating  to  the  reckless  manner  in  which 
Members  of  Congress  were  bribed  or  influenced  by  promises  of  profit  to  turn  over  the 
building  and  ownership  of  these  lines  to  a  private  corporation.  The  investigation 
showed  that  one  prominent  Congressman  who  afterwards  became  President  of  the 
United  States  and  two  others  who  were  nominated  for  the  Vice  Presidency  were 
implicated  in  the  transactions,  as  well  as  others.  Time  and  space  do  not  permit  the 
recital  of  details,  and  it  may  be  sufficient  for  the  present  to  quote  briefly  from  the 
conclusions  reached  by  the  investigating  committees  mentioned.  We  quote  from  the 
Poland  report: 

'  'But  such  is  the  tendency  of  the  times,  and  the  belief  is  far  too  general,  that  all  men 
can  be  ruled  with  money,  and  that  the  use  of  such  means  to  carry  public  measures  is 
legitimate  and  proper.  In  a  free  Government  like  ours  we  can  not  expect  the  people 
will  long  respect  the  laws  if  they  lose  respect  for  the  lawmakers." 

We  quote  the  following  from  the  Wilson  report: 

"A  great  highway  was  to  be  created,  the  use  of  which  for  postal,  military,  and  other 
purposes  was  to  be  secured  to  the  Government.  Your  committee  deem  it  important 
to  call  special  attention  to  the  declared  object  of  this  act,  to  accomplish  which  object 
the  munificent  grant  of  lands  and  loan  of  the  Government  credit  was  made.  Congress 
relied  for  the  performance  of  these  great  trusts  by  the  corporators  upon  their  sense  of 
public  duty;  upon  the  fact  that  they  were  to  deal  with  and  effect  a  large  capital  of 
their  own;  upon  the  presence  of  five  directors  appointed  by  the  President  especially 
to  represent  the  public  interest,  to  hold  no  stocK.  Your  committee  find  themselves 
constrained  to  report  that  the  moneys  borrowed  by  the  corporation  under  a  power 
given  them  only  to  meet  the  necessities  of  the  construction  and  endowment  of  the 
road  have  been  distributed  in  dividends  to  the  corporators;  that  the  stock  was  issued 
not  to  men  who  paid  for  it  at  par  in  money,  but  who  paid  for  it  not  more  than  30  cents 
on  the  dollar  in  road  making;  that  of  the  Government  directors  some  of  them  had 
neglected  their  duties  and  others  had  been  interested  in  the  transactions  by  which 
the  provisions  of  the  organic  law  had  been  evaded;  that  at  least  one  of  the  commis- 
sioners appointed  by  the  President  had  been  directly  bribed  to  betray  his  trust  by 
the  gift  of  $25,000,  and  that  there  had  been  attempt  to  induce  influential  Members  of 
Congress  to  become  interested  in  the  profits.  *  *  *  We  think  the  facts  we  have 
stated  would  furnish  ground  for  judgment  of  forfeiture  of  all  the  franchises,  including 
the  principal  franchise." 

In  this  connection  it  would  be  interesting  to  recall,  if  time  permitted,  the  letters  of 
C.  P.  Huntington,  president  of  the  Pacific  Railway,  and  other  directors  of  the  same 
road,  which  came  to  light  later  in  a  lawsuit,  in  which  he  referred  with  contempt  to  the 
public  officials  whom  he  controlled  with  his  money,  and  the  disgust  and  weariness  which 
seized  him  by  reason  of  the  time  he  was  obliged  to  spend  in  Washington  to  get  the  legislation 
he  wanted. 


22  EXTENSION   OF  GOVERNMENT   CONTBOL  OF  RAILROADS. 

It  would  be  natural  to  suppose  that  after  these  disclosures  of  the  wicked  acts  and 
violations  of  all  laws  by  the  two  Pacific  railroad  companies,  either  shame  or  fear 
would  cause  them  to  discontinue  their  methods;  yet  they  continued  largely  to  control 
Congress  for  many  years,  and  as  late  as  the  55th  Congress  succeeded  in  getting  fresh 
legislation  enabling  them  to  cheat  the  Government  out  of  vast  sums  which  they  still 
owe  the  Nation  and  which  through  various  devices  they  have  evaded  paying. 

The  building  of  the  Pacific  railroads  has  passed  into  history,  leaving  its  dark  blot 
on  our  national  escutcheon,  only  to  be  effaced  as  time  rolls  on,  bringing  with  it  forget- 
fulness.  The  later  period,  though  not  so  notably  corrupt  in  its  flagrant  and  open 
bribery  of  Government  officials,  has  been  equally  wicked  from  the  standpoint  of  its 
effect  upon  the  economic  welfare  of  our  people.  One  of  the  outstanding  examples  of 
this  period  is  the  work  of  the  late  E.  H.  Harriman,  who,  starting  as  a  small  broker,  by 
the  manipulation  of  money  and  securities,  without  building  any  roads  or  doing  any 
other  constructive  service  to  mankind,  amassed  a  fortune  estimated  at  about 
$250,000,000. 

Such  is  a  brief  review  of  railway  promotion  in  the  earlier  days.  We  will  now 
rapidly  survey  the  methods  used  in  more  recent  times  by  some  of  the  chief  bankers 
and  railway  financiers  of  America  whose  influence  now  extends  over  the  entire 
world  in  controlling  money,  credit,  and  monopolies  in  all  lines  of  manufacturing  and 
commerce,  as  well  as  railroads  in  the  United  States. 

RECENT  REFINED  METHODS  OF  RAILWAY  FINANCING  AND  ADMINISTRATION — HISTORY 
OF  A  NATION'S  SHAME,  SHOWING  THE  ILLEGAL  AND  FRAUDULENT  PRACTICES  OF 
AMERICAN  FINANCIERS  AND  EXECUTIVES  DURING  THE  PAST  TWENTY  YEARS  IN  FALSI- 
FYING THEIR  ACCOUNTS  TO  COVER  UP  THE  EMBEZZLEMENT  OF  THE  COMPANY'S 
FUNDS  AND  THE  EXPENDITURES  OF  THE  STOCKHOLDERS'  MONEY  FOR  INFLUENCING 
AND  CONTROLLING  LEGISLATION,  POLITICS,  AND  THE  PRESS;  THE  FRAUDS  PRAC- 
TICED BY  DIRECTORS  IN  TAKING  FOR  THEIR  PRIVATE  USE  THE  FUNDS  OF  THE  COM- 
PANY; THE  DECEPTIVE  ACCOUNTING  REGARDING  CAPITALIZATION,  INVESTMENT, 
ETC.,  AND  THE  BURNING  OF  THE  BOOKS  AND  RECORDS  TO  SECURE  SECRECY  OF  THEIR 
ACTS,  AS  SHOWN  IN  THE  OFFICIAL  REPORTS  OF  THE  INTERSTATE  COMMERCE  COM- 
MISSION. 

During  the  years  from  1912  to  1915  various  complaints  were  made  by  shippers  and 
the  public  to  Congress  and  the  Interstate  Commerce  Commission  respecting  certain 
illegal  practices  of  five  important  systems  of  railways  and  their  resulting  inefficiency 
of  service  and  unjust  rates.  On  account  of  these  complaints,  which  seemed  well 
substantiated,  the  Interstate  Commerce  Commission,  partly  on  its  own  initiative  and 
partly  in  compliance  with  resolutions  of  Congress,  made  investigations,  and  issued 
their  official  reports  of  findings,  in  the  years  1913  to  1917,  respecting  the  unlawful 
practices  and  financial  transactions  of  five  railway  systems  comprising  approximately 
one-third  of  the  country's  entire  mileage.  The  systems  investigated  by  the  Inter- 
state Commerce  Commission  and  reviewed  herein  are: 

The  New  York,  New  Haven  &  Hartford  Railroad  Co.,  report  No.  6569;  date  July 
11,  1914. 

The  Louisville  &  Nashville  Railroad  Co.,  report  No.  4788;  date  February  9,  1915. 

The  Chicago,  Rock  Island  &  Pacific  Railroad  Co.,  report  No.  6834;  date  July  31, 
1915. 

The  St.  Louis  &  San  San  Francisco  Railroad,  report  No.  5933,  January  20,  1914. 

The  Cincinnati,  Hamilton  &  Dayton  Railroad  Co.  and  the  Pere  Marquette  Railroad 
Co.,  report  No.  6833;  date  March  13,  1917. 

These  investigations  were  made  with  the  most  painstaking  care  possible,  covering 
long  periods  of  time,  in  which  special  agents  of  the  commission  were  employed  to 
secure  information  and  to  investigate  the  books  and  accounts.  Officers  of  the  com- 
panies were  summoned  before  the  commission  and  several  thousand  pages  of  testi- 
mony were  taken.  The  findings  of  the  commission  were  published  in  their  official 
reports  mentioned,  and  disclose,  among  others,  the  following  facts: 

The  evidence  secured  by  the  commission  shows  that  every  railroad  company  investi- 
gated knowingly  falsified  its  accounts,  partly  in  order  to  hide  expenditures  of  large 
sums  for  controlling  politics  and  elections  and  influencing  legislation  and  the  admin- 
istration of  laws;  falsified  the  accounts  respecting  capital,  expenses,  and  profits,  BO 
that  the  commission,  in  many  instances,  was  unable  to  find  for  what  purpose  vast  sums 
were  expended ;  and  in  many  cases  the  books  and  accounts  were  burned  by  the  directors 
in  order  to  hide,  in  so  far  as  possible,  various  illegal  transactions.  Many  of  these  arts 
were  done,  as  the  records  conclusively  show,  by  directors  who  are  well  known  as  among 
the  world's  greatest  financiers;  yet  even  though  many  records  were  willfully  destroyed, 
the  commission  was  able  to  secure  sufficient  evidence  in  many  cases  to  disclose  the 
names,  dates,  and  facts. 


EXTENSION  OF   GOVERNMENT   CONTROL  OF  RAILROADS.  23 

In  order  to  place  these  various  illegal  practices  ia  systematic  order  before  you  and 
our  people,  to  demonstrate  the  unregulatal>le  character  of  this  private  control  of  a 
natural  monopoly,  and  to  refer  readily  to  official  evidence  and  the  findings  of  the  com- 
mission, they  may  be  briefly  classified  as  follows: 

1.  Extravagant  speculations  and  purchases  of  -worthless  securities  in  the  interests 
of  the  directors;  peculations  from  the  stockholders'  money  by  illegal  devices,  accom- 
panied by  the  falsifying  of  books  and  accounts  and  their  later  burning  by  the  directors. 

2.  Illegally  spending  the  stockholders'  money  and  property  to  corruptly  influence 
politics,  the  press,  and  public  opinion,  and  to  secure  secrecy  respecting  their  acts. 

3.  Acts  to  secure  a  monopoly  against  the  public  interest,  by  the  violation  of  the  laws 
of  many  States  as  well  as  of  the  nation. 

4.  The  organization  by  the  railway  directors  of  "fake  "  corporations,  with  "dummy  " 
officers  to  hide  the  identity  or  the  real  promoters,  and  shield  them  from  prosecution. 

5.  The  voting  to  themselves  by  the  directors  of  extravagant  salaries,  in  addition  to 
which  large  sums  were  taken  by  some  of  these  officials  without  warrant  of  law. 

The  various  acts  recited  are  necessarily  interwoven  and  mil  be  grouped  by  subjects 
as  systematically  as  convenient. 

All  the  extracts  from  the  commission's  report  respecting  the  various  railway  systems 
are  taken  verbatim  from  the  records. 

"No.  €569. — IN  RE  FINANCIAL  TRANSACTIONS  OF  THE  NEW  YORK,  NEW  HAVEN  & 
HAKTPORD  RAILROAD  €o. — JULY  11,  1914. 

"REPORT  OF  THE  COMMISSION  TO  THE  SENATE  OF  THE  UNITED  STATES. 

"  By  the  COMMISSION: 

"  The  Commission  has  the  honor  to  submit  the  following  report  in  compliance  with 
the  resolution  of  the  Senate  dated  February  7,  1914: 

"SCOPE    OF   THE    INVESTIGATION, 

"  Public  hearings  were  held  extending  over  a  period  of  60  days  of  almost  continuous 
session.  Witnesses  in  a  position  to  have  knowledge  of  the  transactions  under  scrutiny 
were  examined.  In  the  search  for  truth  the  Commission  had  to  overcome  many 
obstacles,  such  as  the  burning  of  books,  letters,  and  documents  and  the  otatinacv  of 
witnesses  who  declined  to  testify  until  criminal  proceedings  were  begun  for  tneir 
refusal  to  answer  questions.  The  New  Haven  system  has  more  than  300  su  bsidiary  cor- 
porations in  a  web  of  entangling  alliances  with  -each  other,  many  of  which  are  seemingly 
planned,  created,  and  manipulated  by  lawyers  expressly  retained  for  the  purpose  of 
concealment  or  deception. 

"The  result  of  our  research  into  the  financial  workings  of  the  former  management 
of  the  New  Haven  system  has  been  to  disclose  one  of  the  most  glaring  instances  of 
maladministraticai  revealed  in  all  the  history  of  American  railroading.  In  the  course 
of  the  investigation  many  instances  were  uncovered  of  violation  of  the  laws  of  different 
States.  As  pointing  to  violations  of  State  laws,  we  have  turned  over  the  evidence 
concerning  local  occurrences  in  New  York  City  to  the  district  attorney  for  the  proper 
district,  and  the  testimony  relating  to  irregularities  in  Massachusetts  and  Rhode 
Island  have  been  laid  before  the  proper  authorities  of  those  States.  The  -Commission 
has  also  furnished  the  Department  ol  Justice  with  a  complete  record  of  the  testimony. 

' '  The  difficulties  under  which  this  railroad  system  has  labored  in  the  past  are  internal 
and  wholly  due  to  its  own  mismanagement.  Its  troubles  have  not  arisen  because  of 
regulation  by  governmental  authority.  Its  greatest  losses  and  most  costly  blunders 
were  made  in  attempting  to  circumvent  governmental  regulation  and  to  extend  its 
domination  beyond  the  limits  fixed  by  law. 

"The  subject  matter  of  this  inquiry  relates  to  the  financial  operation  of  a  railroad 
system  which,  on  June  30, 1903,  had  a  total  capitalization  of  approximately  $93,000,000, 
of  which  $79,000,000  was  stock  and  $14,000,000  bonds.  In  the  10  years  from  June  30, 
1903,  this  capitalization  was  increased  from  $93,000.000  to  $417,000,000,  exclusive  of 
stock  premiums,  or  an  increase  of  $324,000,000.  Of  this  increase  approximately 
$120,000,000  was  devoted  to  its  railroad  property  and  was  expended  for  betterments 
and  equipment.  This  leaves  the  sum  of  $204,000,000,  which  was  expended  for  opera- 
tions outside  of  its  railroad  sphere.  Through  the  expenditure  of  this  sum  this  railroad 
system  has  practically  monopolized  the  freight  and  passenger  business  in  five  of  the 
States  of  the  Union.  "  It  has  acquired  a  monopoly  ol  competing  steamship  iines  and 
trolley  systems  in  the  section  which  it  serves.  The  financial  operations  accessary  for 
these  acquisitions,  and  the  losses  which  they  have  entailed,  have  been  skillfully 
concealed  by  the  juggling  of  money  and  securities  from  one  subsidiary  corporation 
to  another. 


24  EXTENSION   OF   GOVERNMENT   CONTROL   OF  RAILROADS. 

SIGNIFICANT   INCIDENTS. 

"Marked  features  and  significant  incidents  in  the  loose,  extravagant,  and  improvi- 
dent administration  of  the  finances  of  the  New  Haven  as  shown  in  this  investigation 
are  the  Boston  &  Maine  despoilment;  the  iniquity  of  the  Westchester  acquisition; 
the  double  price  paid  for  the  Rhode  Island  trolleys;  the  recklessness  in  the  purchase 
of  Connecticut  and  Massachusetts  trolleys  at  prices  exorbitantly  in  excess  of  their 
market  value;  the  unwarranted  expenditure  of  large  amounts  in  "educating  public 
opinion;"  the  disposition,  without  knowledge  of  the  directors,  of  hundreds  of  thou- 
sands of  dollars  for  influencing  public  sentiment;  the  habitual  payment  of  unitemized 
vouchers  without  any  clear  specification  of  details;  the  confusing  interrelation  of  the 
principal  company  and  its  subsidiaries  and  consequent  complication  of  accounts; 
the  practice  of  financial  legerdemain  in  issuing  large  blocks  of  New  Haven  stock  for 
notes  of  the  New  England  Navigation  Co.,  and  manipulating  these  securities  back 
and  forth;  fictitious  sales  of  New  Haven  stock  to  friendly  parties  with  the  design  of 
boosting  the  stock  and  unloading  on  the  public  at  the  higher  'market  price;'  the 
unlawful  diversion  of  corporate  funds  to  political  organizations;  the  scattering  of 
retainers  to  attorneys  of  five  States,  who  rendered  no  itemized  bills  for  services 
and  who  conducted  no  litigation  to  which  the  railroad  was  a  party;  extensive  use 
of  a  paid  lobby  in  matters  as  to  which  the  directors  claim  to  have  no  information; 
the  attempt  to  control  utterances  of  the  press  by  subsidizing  reporters;  payment  of 
money  and  the  profligate  issue  of  free  passes  to  legislators  and  their  friends;  the  in- 
vestment of  $400,000  in  securities  of  a  New  England  newspaper;  the  regular  employ- 
ment of  political  bosses  in  Rhode  Island  and  other  States,  not  for  the  purpose  of  having 
them  perform  any  service  but  to  prevent  them,  as  Mr.  Mellen  expressed  it,  from 
'becoming  active  on  the  other  side;'  the  retention  by  John  L.  Billard  of  more  than 
$2,700,000  in  a  transaction  in  which  he  represented  the  New  Haven  and  into  which 
he  invested  not  a  dollar;  the  inability  of  Oakleigh  Thorne  to  account  for  $1,032,000 
of  the  funds  of  the  New  Haven  intrusted  to  him  in  carrying  out  the  Westchester 
proposition;  the  story  of  Mr.  Mellen  as  to  the  distribution  of  $1,200,000  for  corrupt 
purposes  in  bringing  about  amendments  of  the  Westchester  and  Port  Chester  franchises; 
the  domination  of  all  the  affairs  of  this  railroad  by  Mr.  Morgan  and  Mr.  Mellen  and 
the  absolute  subordination  of  other  members  of  the  board  of  directors  to  the  will  of 
these  two;  the  unwarranted  increase  of  the  New  Haven  liabilities  from  $93,000,000 
in  1903  to  $417,000,000  in  1913;  the  increase  in  floating  notes  from  nothing  in  1903 
to  approximately  $40,000,000  in  1913;  the  indefensible  standard  of  business  ethics 
and  the  absence  of  financial  acumen  displayed  by  eminent  financiers  in  directing  the 
destinies  of  this  railroad  in  its  attempt  to  establish  a  monopoly  of  the  transportation 
of  New  England.  A  combination  of  all  these  has  resulted  in  the  present  deplorable 
situation  in  which  the  affairs  of  this  railway  are  involved." 

Pages  35  to  41  of  the  report  give  a  history  of  the  celebrated  transaction  in  which  18 
miles  of  railroad,  in  which  Directors  J.  P.  Morgan,  sr.,  William  Rockefeller,  and  some 
promoters  who  were  their  friends,  were  interested,  was  unloaded  by  them  on  the 
railroad  company  at  a  meeting  kept  secret  from  the  rest  of  the  board  of  directors,  at 
which  meeting  President  Mellen  presided.  This  property  proved  to  be  more  than 
worthless  to  the  stockholders,  having  been  operated  at  an  annual  loss  of  over  $1,000,000, 
annually,  and  for  which  their  directors  forced  them  to  pay  the  vast  sum  of 
$36,434,173.25. 

The  principal  accounts  respecting  this  transaction  were  kept  in  the  office  of  J.  P. 
Morgan  &  Co. ,  in  such  a  manner  as  to  hide  the  purposes  for  which  moneys  were  received 
or  expended,  under  the  title  of  "Special  Account  No.  2."  Part  of  the  accounts  were 
kept  by  another  banker  interested  in  the  transaction  named  Oakleigh  Thorne,  respect- 
ing whom  the  commission  report  says: 

"It  appeared  during  the  progress  of  this  investigation  that  the  personal  records  of 
Thorne  which  might  have  shown  all  the  details  of  these  disbursements  had  been  burned 
by  him  in  January,  1912." 

This  transaction  is  all  the  more  sensational  since  Mellen,  president  of  the  road,  was 
not  permitted  by  the  directors,  who  robbed  it  to  the  extent  of  millions  of  dollars,  to 
know  who  got  the  money. 

Another  startling  fact,  the  exact  counterfeit  of  which  has  perhaps  often  occurred 
in  the  history  of  American  railroading,  but  never  before  known  and  published,  is 
revealed  in  this  investigation  respecting  this  road.  The  record  shows  conclusively 
that  President  Mellen  of  the  road  was  practically  appointed,  or  selected,  at  the  instiga- 
tion of  J.  P.  Morgan,  sr.,  and  when  this  "president"  desired  to  ascertain  the  facts 
respecting  the  transaction  in  which  the  road  was  robbed  by  a  conspiracy  of  Mr.  Morgan 
with  three  other  directors  without  the  knowledge  of  the  rest  of  the  board,  "President " 
Mellen  was  not  permitted  by  Mr.  Morgan  to  know  (as  he  expressed  it  over  his  official 
signature  as  disclosed  in  the  record)  "who  got  the  money  for  the  truck  turned  over." 

The  following  is  from  the  report: 


EXTENSION   OF   GOVERNMENT   CONTROL   OF   RAILROADS.  25 

"THE  NEW  YORK,  WESTCHESTER  &  BOSTON  RAILWAY  co. 

' '  The  Westchester  is  a  story  of  the  profligate  waste  of  corporate  funds.  The  road  was 
not  necessary  as  a  part  of  the  New  Haven  system.  It  parallels  other  lines  already 
owned  by  the  New  Haven  and  traverses  territory  which  the  New  Haven  already 
served.  That  it  was  recognized  as  unnecessary  by  the  New  Haven  itself  at  its  incep- 
tion is  evidenced  by  the  fact  that  the  New  Haven  sought  an  injunction  to  restrain  the 
construction  of  this  road  on  the  specific  ground  that  it  was  not  in  answer  to  any  public 
necessity  and  paralleled  its  already  existing  line. 

"The  enormous  sum  of  $36,434,173.25  was  expended  for  a  road  only  18.03  miles  in 
extent,  which  is  being  operated  at  an  annual  loss  of  approximately  $1,250,000,  and 
which  will  have  to  increase  its  earnings  four  and  one-half  fold  before  it  can  pay  its 
operating  expenses  and  fixed  charges.  It  is  inconceivable  that  this  enterprise  could 
have  been  entered  into  by  the  New  Haven  as  a  result  of  the  mandates  of  good  judg- 
ment and  proper  railroading. 

"  The  Westchester  acquisition  was  planned  and  executed  by  a  special  committee  of 
the  board,  consisting  of  directors  Morgan,  Rockefeller,  and  Miller,  with  president 
Mellen  as  chairman.  The  vote  appointing  this  committee  'on  proposed  competition 
between  the  Connecticut  State  line  and  Harlem  River,  with  power,'  does  not  dis- 
close an  intention  to  authorize  the  buying  of  charters  and  promotion  securities  and 
the  building  of  a  new  railroad,  much  less  one  at  a  cost  of  $36,000,000.  It  is  ambiguous 
and  was  evidently  intended  to  conceal  a  secret  purpose.  The  full  board  was  not 
taken  into  the  confidence  of  those  directors  who  wanted  theee  securities  purchased, 
and  no  report  was  ever  made  by  this  committee  placing  the  situation  as  they  found 
it  before  the  board. 

' '  The  first  information  the  board  had  concerning  the  extravagant  acquisition  of  West- 
Chester  and  Port  Chester  securities  was  on  November  8,  1907,  when  this  committee 
made  its  only  report.  It  was  then  learned  that  $11,155,000  had  been  expended  in 
obtaining  control  of  these  two  insolvent  promotion  schemes,  and  that  this  expendi- 
ture carried  with  it  an  obligation  to  construct  two  railroads,  under  franchises  of  doubt- 
ful validity,  paralleling  the  existing  line  of  the  New  Haven. 

"There  is  no  record  that  this  committee  ever  required  from  these  parties  an  item- 
ized statement  of  the  disbursements  they  made  of  the  funds  advanced  from  'special 
account  No.  2"  nor  was  any  such  statement  ever  rendered.  No  vouchers  were  taken. 
Special  account  No.  2  on  the  books  of  J.  P.  Morgan  &  Company  shows  nothing  more 
than  the  lump  sums  received  from  the  New  Haven  and  the  disbursement  of  the  same 
to  Thorne  and  later  to  the  Millbropk  Company  on  notes  of  the  respective  payees. 
It  appeared  d  uring  the  progress  of  this  investigation  that  the  personal  records  of  Thorne 
which  might  have  shown  the  detail  of  these  disbursements  nad  been  burned  by  him 
in  January,  1912,  as  before  stated. 

"In  a  letter  of  October  30, 1906,  to  C.  S.  Mellen  from  the  attorney,  Francis  Lynde 
Stetson,  who  was  representing  all  the  parties  in  the  deal,  namely,  J.  P.  Morgan  & 
Company,  the  Millbrook  Company,  Perry  and  Thorne,  and  the  New  York,  New  Haven 
&  Hartford  Railroad  Company,  there  is  the  following  language  which  is  significant 
as  to  the  course  the  committee  was  pursuing: 

"  'Referring  to  the  conversation  this  morning  between  yourself,  Mr.  Thorne,  and 
myself,  it  has  occurred  to  me  that  it  is  possible  that  Mr.  Thorne's  purchases  and  even 
his  payments  may  have  to  begin  before  he  shall  have  ascertained  the  validity  of  the 
two  principal  charters  which  he  is  to  acquire,  and  that  in  the  event  of  the  develop- 
ment subsequently  of  their  invalidity  it  might  be  that  the  money  spent  would  be 
money  lost.' 

"The  report  of  this  committee,  however,  was  unanimously  'approved,  ratified, 
and  confirmed '  at  the  meeting  of  the  board  of  November  8,  1907,  at  which  the  follow- 
ing directors  were  present:  Mellen,  Rockefeller,  Morgan,  Milner,  Thayer,  Brooker, 
Brush,  Warner,  Cheney,  Miller,  Skinner,  Barney,  Taft,  Wittemore,  Elton,  Heming- 
way, Robertson,  Robbins,  and  Parker. 

After  this  meeting  of  the  board  at  which  this  undetailed  report  was  ratified.  Mr. 
Mellen  went  to  see  Mr.  Morgan,  and  requested  more  information  as  to  the  expenditure 
of  the  amounts.  According  to  Mr.  Mellen's  evidence,  Mr.  Morgan  asked  him  if  he 
knew  who  wrote  the  report,  and  upon  Mr.  Mellen's  reply, '  Yes;  Mr.  Stetson  wrote  it,' 
Mr.  Morgan  asked  him,  '  Do  you  think  you  know  more  than  Stetson?'  ^  Mr.  Mellen 
admitted  he  did  not,  and  apparently  acquiesced,  but  took  the  precaution  to  write 
upon  the  back  of  his  report,  while  still  smarting  under  the  humiliation  of  the  interview 
with  Mr.  Morgan,  the  following  words: 

"'The  trouble  with  this  there  is  nothing  to  show  who  got  the  money  for  the  truck 
turned  over.  I  don't  like  the  looks  of  it,  but  I  don't  see  why  the  matter  should  not 
be  made  plain.  If  I  had  the  stock  and  sold  it,  I  should  expect  others  would  state 


26  EXTENSION  OF  GOVERNMENT   CONTROL  OF  RAILROADS. 

they  bought  it  of  me;  but  that  don't  seem  to  have  been  the  disposition  here.  I  never 
have  known  the  first  thing  about  who  originally  held  the  securities,  what  they  were 
sold  for ;  and  no  one  thought  that  I  was  entitled  to  know.  Perhaps  I  am  not.  I  would 
feel  better  if  there  were  at  least  a  disposition  to  let  me  know  something  more  than 
appears  in  the  record. 

"'(Signed)  C.  S.  M.'" 

*****'** 

"  The  solution  of  the  difficulties  was  the  further  expenditure  of  $1.524,072.77.  This 
was  artfully  arranged  by  having  the  New  Haven  on  June  15,  1908.  transfer  to  its  sub- 
sidiary, the  New  England  Navigation  Company,  8,000  shares  of  its  stock  at  $150  per 
share,  which  the  Navigation  Company  in  turn  transferred  to  Charles  S.  Mellen,  the 
president  of  both  corporations,  who  conducted  the  negotiations.  On  March  5,  1909, 
an  additional  1.495' shares  of  New  Haven  stock  at  $158  per  share  was  in  like  manner 
placed  in  Mr.  Mellen 's  possession,  and  certain  sums  of  money  were  also  advanced  to 
him  from  time  to  time. 

"There  were  just  13  tilings  that  had  to  be  done,  according  to  Mr.  Mellen,  to  get  the 
Westchester  out  of  its  franchise  difficulties,  and  it  is  significant  that  all  amendments 
to  the  franchises  were  obtained,  and  the  sequence  was  that  the  New  Haven,  in 
addition  to  these  things,  received  30,431  of  the  34.053$  outstanding  shares  of  the  New 
York,  Westchester  &  Boston  Railroad  Co.  stock,  which  Mr.  Mellen  testified  was  not 
worth  10  cents  a  pound.  The  testimony  is  somewhat  occult,  but  the  character 
of  the  transaction  is  no  less  certain.  This  money  was  used  for  corrupt  purposes  and 
the  improper  expenditures  covered  up  by  the  transfer  to  the  New  Haven  of  these 
worthless  securities. 

******* 

"  No  comment  is  necessary  to  make  clear  to  the  mind  the  corrupt  and  unlawful 
nature  of  this  transaction,  and  it  would  seem  that  the  amount  illegally  expended 
could  be  recovered  from  Mr.  Melleu  and  the  directors  who  authorized  it." 

******* 

In  accordance  with  the  opinion  expressed  above  by  the  commission  as  to  the 
responsibility  of  those  who  perpetrated  this  wrong  upon  the  stockholders  of  the  New 
Haven,  suit  was  some  time  ago  instituted  by  17,023  stockholders  against  Messrs. 
Morgan  and  Rockefeller,  who  were  directly  responsible  for  the  swindling  of  the  stock- 
holders, and  other  directors  who  were  either  directly  or  indirectly  responsible.  The 
amount  of  damage  claimed  in  the  suit  to  be  restored  to  the  stockholders  was  $150, 000,000. 
Respecting  these  men  the  commission  says:  "Some  are  guilty  for  acts  committed; 
others,  the  greater  number,  for  their  failure  to  act.  They  are  alike  culpable  and 
responsible  to  the  stockholders." 

MILLIONS    WASTED    IN    THE    PURCHASE    AT    EXTRAVAGANT    PRICES    OF    TROLLEY    LINES 
AND   STEAMSHIP  COMPANIES   AT  THE    EXPENSE    OF  THEIR   STOCKHOLDERS. 

The  following  is  from  pages  41-44  of  the  report: 


"The  purchase  of  the  Rhode  Island  trolleys  was  another  instance  of  millions  wasted 
in  acquiring  properties  that  bring  an  annual  deficit  instead  of  a  surplus,  and  consti- 
tute a  liability  instead  of  an  asset  in  the  New  Haven  system. 

"The  United  Gas  Improvement  Co.,  of  Philadelphia,  that  controlled  this  property 
under  lease,  had  capitalized  the  future  hopes  of  the  proposition  into  a  holding  com- 
pany known  as  the  Rhode  Island  Securities  Co.  and  had  issued  $19,899,000  of  deben- 
tures, which  represented  an  investment  of  approximately  only  $6,000,000.  The 
difference  in  these  amounts  was,  as  Mr.  Mellen  testified,  merely  capitalized  water. 

"Not  to  be  deterred  by  extravagant  expenditure,  Mr.  Mellen  undertook  to  ex  change 
the  debentures  of  the  Providence  Securities  Co.,  which  he  had  created  for  the  pur- 
pose, for  these  debentures  of  the  Rhode  Island  Securities  Co.,  and  to  add  theroon 
the  guaranty  of  the  New  York,  New  Haven  &  Hartford  Railroad  Co.,  both  as  to  prin- 
cipal and  interest.  The  result  of  the  transaction  was  to  enable  the  United  Gas  Im- 
provement Co.  to  realize  par  value  on  these  securities,  based  merely  upon  lively 
expectation  of  future  possibilities,  and  thereby  immediately  placed  the  burden  of  the 
watered  stock  upon  the  backs  of  the  New  Haven  stockholders. 

"  The  millions  that  were  made  from  this  transaction  did  not  come  through  magic,  but  vwe 
brought  into  existence  at  the  expense  of  the  stockholders  of  the  New  Haven,  upon  whom 
and  the  public  the  yoke  of  giving  value  to  these  securities  ultimately  rested,  and  the 
New  Haven  stock  was  diluted  to  the  extent  of  the  water  thus  added. 


EXTENSION   OF   GOVERNMENT   CONTROL  OF  RAILROADS.  27 

"This  gas  company  also  owned  some  Connecticut  trolley  lines,  and  it  was  made  a 
further  condition  of  the  Rhode  Island  trolley  acquisition  that  the  New  Haven  take  over 
these  properties. 

"When  the  details  had  been  worked  out  by  Mr.  Mellen  for  the  assuming  of  this 
additional  burden  the  board  of  directors  without  question  acquiesced.  Mr.  Mellen. 
testified  that  these  Connecticut  trolleys  represented  a  payment  of  about  $10  000,000  more 
than  their  value. 

"The  Rhode  Island  and  Connecticut  trolley  ventures  are  further  evidences  of  the 
prodigality  in  the  expenditure  of  the  money  of  the  New  Haven  stockholders  in 
•carrying  out  an  unlawful  policy  of  transportation  monopoly." 

MALADMINISTRATION   COST  THE    STOCKHOLDERS   $20,000.000   ADDITIONAL. 

On  pages  55  and  56  is  the  following: 

"THE  NEW  ENGLAND  INVESTMENT  &  SECURITY  co. 

"This  company  and  its  affairs  constitute  a  striking  illustration  of  the  deliberate 
attempt  to  entangle  the  New  Haven  with  street  railways  which  has  recently  been 
publicly  avowed  by  former  President  Mellen. 

"  The  Supreme  Judicial  Court  of  Massachusetts  (198  Mass. ,  413)  decided  in  substance 
that  this  company  was  not  separate  and  independent  of  the  New  Haven,  but  was  a 
mere  device  of  that  company  to  continue  to  hold  stock  in  Massachusetts  trolleys  in 
violation  of  the  laws  of  that  State. 

"The  testimony  shows  that  Charles  S.  Mellen  held  control  of  the  common  stock  of 
this  company  through  James  B.  Brady,  as  a  dummy,  until  quite  a  recent  period. 
These  shares  have  been  transferred  to  Sanderson  &  Porter,  a  firm  of  railroad  contrac- 
tors and  builders,  who  since  1902  have  from  time  to  time  been  engaged  in  operations 
for  the  New  Haven. 

"  It  seems  quite  clear  in  view  of  the  relations  of  this  firm  with  the  New  Haven  in 
the  past  that  this  stock  is  now  held  by  Sanderson  &  Porter  for  the  New  Haven. 

"All  profits  which  this  company  has  made  in  the  past  have  been  the  result  of 
transactions  in  the  purchase  and  sale  of  securities  in  which  the  New  Haven  had  title 
or  large  interests,  not  in  the  open  market,  but  under  circumstances  which  would  have 
been  collusive  and  fraudulent  if  this  security  company  was  in  fact  an  independent 
organization  entirely  separate  from  the  New  Haven. 

On  its  note  there  were  turned  over  to  it  at  one  time  $9,918.145.65  of  securities 
bought  and  paid  for  with  New  Haven  funds. 

The  inside  facts  as  to  its  dealings  show  a  continued  operation  in  violation  of  Massa- 
chusetts laws  and  in  flagrant  violation  of  the  injunction  issued  by  the  highest  court 
of  that  State. 

"  A  summary  of  the  operations  of  the  New  England  Investment  &  Security  C'o.  as 
recorded  on  its  books  appears  in  the  appendix,  identified  as  Exhibit  D. " 

JUGGLING    THE    ACCOUNTS    TO    INCREASE    CAPITALIZATION    AND    HIDE    IRREGULARITIES. 

It  has  always  been  a  favorite  device  of  the  American  railroads  to  print  additional 
certificates  of  capital  stock  which  represent  no  real  value,  and  sell  them  to  the  public, 
and  in  other  cases  by  juggling  back  and  forth  of  the  assets  and  accounts  to  suit  the 
private  purpose  of  directors  and  financiers,  to  form  an  excuse  for  increased  rates. 
The  Interstate  Commerce  Commission  refers  to  these  methods  in  the  following  ex- 
tracts from  pages  57-58  of  the  report. 

"QUESTIONABLE  METHODS  EMPLOYED  TO  INCREASE  THE  AMOUNT  OF  CAPITAL  STOCK. 

"Increases  in  capital  stock  of  the  New  York,  New  Haven  &  Hartford  Railroad 
Co.  have  been  made  upon  the  basis  of  transfers  of  assets  from  oi>e  subordinate  com- 
pany to  another. 

"The  steamship  properties  of  this  system  at  one  time  were  held  "by  the  New  Fug- 
land  Navigation  Co.,  approximating  a  cost  of  $11,500,000.  This  latter  company  in 
1907  transferred  the  title  to  these  steamship  properties  to  the  Consolidated  Railway 
Co.  at  a  value  of  $20.000.000.  The  Consolidated  Railway  C'o.  thereupon  increased 
its  capital  stock  $20,000,000.  The  Consolidated  Railway  Co.  wae  then  merged  with 
the  New  Huven,  and  the  stock  of  the  latter  company  increased  $30,000,000,  $20.000.000 
of  which  went  to  the  New  England  Navigation  Co.,  and  placing  in  its  treasury  by 
this  transaction  $20,000,000  Consolidated  Railway  stock,  which  by  the  merger 
became  New  Haven  stock,  with  a  market  value  of  over  $30,000,000.  It  was  this 
stock  with  which  control  of  the  Boston  &  Maine  Kailroad  Co.  was  secured. 


28  EXTENSION   OF   GOVERNMENT   CONTROL  OF  RAILROADS. 

"MANIPULATION  OF  ACCOUNTS. 

"Proper  accounting  demands  that  the  records  of  a  company  should  reflect  accu- 
rately trie  transactions  relating  to  th  e  matter  recorded ,  and  where  accounts  fail  to  reveal 
a  true  history  of  the  transactions  it  can  be  due  to  but  one  of  two  causes — carelessness 
or  design. 

"Several  transactions  appear  of  record  which  show  that  by  no  stretch  of  imagina- 
tion can  the  irregularity  of  recording  be  classified  as  due  to  carelessness;  the  following 
are  illustrations : 

"  In  February,  1911,  the  New  York,  New  Haven  &  Hartford  Railroad  purchased 
23,520^  shares  of  the  Rutland  Railroad  Co.  's  stock  from  the  New  York  Central  &  Hud- 
son River  Railroad  Co.,  giving  in  exchange  therefor  its  check  upon  the  Farmers' 
Loan  &  Trust  Co.  in  the  sum  of  $2,364,977.15.  No  entries  can  be  found  in  the  record 
of  the  New  Haven  Company  which  reveal  this  transaction.  The  stock  thus  acquired 
was  on  the  same  day,  with  a  check  for  $135,022.85,  delivered  to  the  New  England 
Navigation  Co.  in  exchange  for  its  note  of  $2,500,000.  The  effect  of  the  recording  of 
this  transaction  is  that  the  sum  paid  the  New  York  Central  for  the  stock  shows  as  a 
cash  advance  to  the  New  England  Navigation  Co. 

"February  14,  1910,  the  New  England  Navigation  Co.  sold,  through  the  firm 
of  J.  P.  Morgan  &  Co.,  50,000  shares  of  New  York,  New  Haven  &  Hartford  Railroad 
Co.  stock  at  a  price  of  157  net,  the  cash  proceeds  amounting  to  $7,849,000.  A  check 
was  remitted  by  J.  P.  Morgan  &  Co.  for  $5,162,203.02  to  the  New  England  Naviga- 
tion Co.,  and  16,744  shares  of  Worcester,  Nashua  &  Rochester  stock  were  acquired 
for  the  account  of  the  New  England  Navigation  Co.  at  a  total  cost  of  $2,686,796.98." 

DUMMY    COMPANIES    FORMED   TO    HIDE    THE    IDENTITY    OF    RAILROAD    OFFICIALS    AS    TO 
THEIR   COMPLICITY   IN   ILLEGAL   ACTS   AND   FRAUDS    ON   THE    STOCKHOLDERS. 

The  following  is  from  pages  45,  60,  and  61  of  the  official  report. 

"Witnesses  who  were  officers  of  some  of  these  companies  appeared  before  the  com- 
mission and  testified  that  they  acted  as  'dummies'  under  the  directions  of  Robbins  and 
of  attorneys  selected  by  him.  Some  of  them  handled,  without  any  knowledge  of  the 
nature  or  purpose  of  the  transactions,  checks  approximating  $3,000,000. 

"DUMMY  COMPANIES. 

"The  frequency  with  which  dummy  corporations  and  dummy  directors  appear  in 
this  record  leads  to  the  conclusion  that  some  one  high  in  the  counsels  of  the  New  Haven 
had  an  obsession  upon  the  subject  of  the  utility  of  such  sham  methods.  The  directors 
of  the  Billard  Company  confessed  that  they  were  dummies  and  knew  nothing  of  its 
operations.  Why  men  of  respectability  and  standing  as  these  appear  to  be  should  lend 
their  names  as  dummies  passes,  comprehension. 

"In  the  organization  of  one  of  the  steamship  companies  the  young  lady  stenographer 
was  made  president;  and  a  youth  of  21  years  of  age  by  the  name  ofGrover  Cleveland  Richards 
was  selected  as  treasurer  of  another  company. 

"Clerics  and  irresponsible  persons  were  drawn  upon  to  supply  the  demand  for  dummies 
in  the  financial  joy  riding  by  the  management  of  the  New  Haven. 

"Mellen's  stock  in  the  New  England  Investment  &  Securities  Co.  was  held  by 
James  B.  Brady,  who  testified  that  he  was  merely  a  dummy  for  Mr.  Mellen.  Director 
Skinner's  stock  in  this  same  company  was  held  by  a  relative  and  a  bookkeeper  in  his 
office.  Thus,  throughout  the  entire  story  of  deception,  the  New  Haven  management 
vainly  endeavored  to  hide  the  true  facts  behind  these  dummy  individuals  and  dummy 
corporations. 

"As  a  matter  of  law,  such  devices  are  feeble  and  puerile,  but  if  the  master  financiers 
behind  these  New  Haven  transactions  could  use  these  sham  methods  and  thus  give 
their  indoresment  to  the  availability  of  such  crooked  schemes  to  cover  the  true  sub- 
stance and  fact  of  financial  transactions  it  indicates  a  low  state  of  financial  morality. 
No  condemnation  can  be  too  severe  to  apply  to  the  frequent  use  of  these  companies 
by  the  New  Haven. 

_  -'  'While  in  many  States  there  are  safeguards  established  by  law,  in  other  States  there 
is  such  a  prodigality  in  the  creation  of  corporations  as  to  greatly  prejudice  the  interests 
of  investors,  creditors,  and  the  public  welfare  generally. 

While  stock  in  the  New  Haven  road  was  listed  on  the  New  York  Stock  Exchange  a 
large  portion  of  its  funds  were  invested  in  "blue  sky"  corporations,  the  officers  of 
which  knew  nothing  of  the  purposes  or  assets  of  the  companies  of  which  they  were 
managers  or  officers. 


EXTENSION   OF   GOVERNMENT   CONTROL   OF  RAILROADS.  29 

HOW  OFFICIALS  PROFITED  AT  THE  EXPENSE  OF  THEIR  ROADS  BY  CONTRACTS  WITH  COM- 
PANIES IN  WHICH  THEY  OR  THEIR  FRIENDS  WERE  FINANCIALLY  INTERESTED. 

The  records  of  the  New  Hayen,  as  well  as  the  other  railway  systems  investigated, 
invariably  show  that  the  officials  did  not  purchase  their  supplies  in  a  businesslike 
manner  and  at  reasonable  prices,  but  at  extravagant  prices  in  their  own  interest  with- 
out regard  to  that  of  the  stockholders.  As  this  was  the  general  custom,  the  history 
abounds  with  many  like  transactions. 

"LARGE  PURCHASES  WITHOUT  BIDS. 

"Purchases  of  cars  and  coal  are  two  large  expenditures  that  railroads  make.  The 
New  Haven  purchased  cars  almost  exclusively  from  James  B.  Brady  without  compe- 
tition and  to  the  extent  of  some  $37,000,000.  Mr.  Brady,  as  a  witness,  made  no  secret 
of  his  generosity  to  the  officials  with  whom  he  had  business.  His  methods  were  justi- 
fied by  him  on  the  ground  that  the  officers  of  the  New  Haven  were  old  friends. 

"Locomotives  were  purchased  from  a  company  in  which  a  director  of  the  New 
Haven  was  also  a  director.  Many  supplies  obtained  by  the  New  Haven  were  from 
companies  having  directors  who  were  also  directors  of  the  New  Haven. 

^'Corporate  economy  is  not  practicable  where  gifts  and  obligations  arising  from 
friendship  tend  to  obscure  official  duty." 

The  following  extract  respecting  the  railroads'  expenditures  for  controlling  politics 
is  found  on  pages  61-62  of  the  report. 

POLITICAL   CONTRIBUTIONS. 

"The  New  Haven  Railroad  had  no  politics.  It  was  Democratic  in  Democratic 
States  and  Republican  in  Republican  States.  As  Mr.  Mellen  testified,  its  effort  was 
always  to  'get  under  the  best  umbrella.' 

"Payments  made  for  political  purposes  totaled  a  large  sum. 

"For  instance,  in  1900,  $50,000  was  contributed  by  the  New  Haven  for  campaign 
purposes  through  J.  P.  Morgan  &  Co.  No  proper  and  complete  voucher  for  this 
payment  appears  on  the  books  of  the  New  Haven  Co. 

"In  1904  a  payment  of  $50,000  was  made  through  Mr.  Mellen  for  political  purposes. 
This  was  secretly  done  and  not  reported  to  the  directors  or  stockholders  or  in  any 
manner  made  public. 

"No  public  -service  corporation  may  rightfully  use  corporate  funds  to  promote  a 
political  cause  or  to  support  a  political  candidate  or  a  political  party. 

"A  corporation  as  such  has  no  political  principles  to  maintain  and  no  political 
candidates  to  support. 

"The  revenues  of  a  public-service  corporation  are  for  the  most  part  derived  from  the 
exercise  of  the  right  delegated  to  it  by  the  sovereign  power  to  tax  the  public  by  fixed 
rates  established  in  accordance  with  law.  Shippers  and  the  traveling  public  may  be 
presumed  to  be  divided  in  political  opinion.  Corporate  revenue  derived  by  public 
tax  from  men  of  one  political  conviction  can  not  be  used  to  support  the  fortunes  of  a 
candidate  or  party  of  contrary  political  principles. 

"Regardless  of  the  injustice  to  stockholders  and  travelers  belonging  to  another 
party  which  results  from  such  use  of  funds,  the  withdrawal  from  corporate  use  and  the 
diversion  to  political  use  is  illegal  and  indefensible. 

"Nor  is  the  ' education '  of  the  public  upon  economic  issues  any  part  of  the  province 
of  a  corporation  such  as  here  in  question. 

"Such  political  and  'educational'  use  of  corporate  funds  is  a  gross  injustice  to  the 
stockholders  and  the  public." 

LOSSES  OF  560,000,000  TO  $90,000,000  DUE  TO  WASTE,  MISMANAGEMENT,  AND  SPECULA- 
TIONS BY  RAILROAD  OFFICIALS,  AND  ATTEMPTS)  TO  CONTROL  POLITICS,  TUB  PRESS, 
AND  PUBLIC  OPINION. 

The  following  is  from  pages  63-70  of  the  official  report: 

"WASTE — IMPAIRMENT  OF  VALUE — LOSSES. 

"In  attempting  to  estimate  the  losses  of  the  New  Haven  stockholders,  the  three 
large  items  of  loss  with  which  we  are  confronted  are  those  arising  out  of  the  accruisi- 
tion  of  the  Boston  &  Maine  stock,  the  New  York,  Westchester  &  Boston  stock,  and  the 
Rhode  Island  trolleys. 

"Two  hundred  and  nineteen  thousand  one  hundred  and  eighty -nine  shares  of  the 
common  stock,  6,543  shares  of  the  preferred  stock,  and  one  bond  of  the  Boston  &  Maine 


30  EXTENSION"   OF   GOVERNMENT  CONTROL  OF  RAILROADS. 

Railroad  are  carried  for  the  New  Haven  by  the  Boston  Railroad  Holding  Co.,  as  of 
December  31,  1913,  at  $30,303,653.18.  There  must  of  necessity  be  a  large  loss  upon 
the  capital  invested  in  this  Boston  &  Maine  stock,  by  reason  of  the  depreciation  thereof 
in  the  market,  caused  by  the  New  Haven's  mismanagement. 

"  It  is  difficult  to  form  an  estimate  of  the  extent  of  this  depreciation. 

"The  Boston  Railroad  Holding  Co.,  on  October  1, 1909,  took  over  the  New  Haven's 
Boston  &  Maine  stock  at  $140  per  share. 

"At  present  the  Boston  &  Maine  stock  is  selling  in  the  market  at  somewhere  around 
$40  per  share. 

"The  market  depreciation  of  the  common  stock  of  the  Boston  &  Maine  owned  by  the 
New  Haven  is  therefore  $20,475,025.68. 

"Where  figures  are  submitted  as  estimates  herein  they  are  and  must  of  necessity  be 
taken  only  as  approximations. 

"There  is  the  additional  loss  growing  out  of  the  unfortunate  Billard  transaction  of 
$2,748,700  unless  John  L.  Billard  is  compelled,  as  he  should  be,  to  make  restitution. 

"In  addition  there  have  been  large  expenses  incurred  in  litigation,  in  procuring 
legislation,  and  in  a  vain  attempt  to  stem  the  tide  of  adverse  popular  opinion. 

"A  summarization  of  these  figures,  where  they  are  specific,  is  as  follows: 
Depreciation  (using  market  price  of  $40) : 

Boston  &  Maine $20,  475, 025.  68 

Billard  transaction 2,  748,  700.  00 

Total  depreciation  and  loss 23,  223,  725.  68 

******* 

"A  summary  of  the  foregoing  losses  is  as  follows: 

Boston  &  Maine $23,  223,  725.  68 

New  York,  Westchester  &  Boston 11,457,156.09 

Hartford  &  Worcester  Street  Railway 73,  394.  27 

Springfield  Railway  companies 203,  221.  15 

Worcester  Consolidated  Street  Railway 10,  500.  00 

Worcester  &  Southbridge  Street  Railway 15, 580.  00 

Connecticut  Co " 12, 535,  386.  01 

Rhode  Island  Co 18,  352,  336.  41 

Total 65,  871,  299.  61 

******* 

"From  all  of  the  foregoing  and  from  a  careful  consideration  of  the  method  in  which 
expenditures,  not  specified  herein,  have  been  made,  it  is  submitted  that  a  reasonable 
estimate  of  the  loss  to  the  New  York,  New  Haven  &  Hartford  Railroad  Co.  by  reason 
of  waste  and  mismanagement  will  amount  to  between  $60,000,000  and  $90,000,000. 

"The  splendid  property  of  the  New  Haven  Railroad  itself  will  be  called  upon  for 
many  a  year  to  make  up  the  drain  upon  its  resources  resulting  from  the  unpardonable 
folly  of  the  transactions  outside  the  proper  field  in  which  stockholders  supposed  their 
moneys  were  invested. 

"But  honesty  and  efficiency  of  management  of  this  property  as  a  railroad  only 
will  undoubtedly,  in  time,  restore  its  former  standing. 

"EVIL   OF  INTERLOCKING   DIRECTORATES. 

"A  system  of  interlocking  directorates  has  f»rown  up  and  flourished  in  the  past 
few  years  which  has  brought  about  combinations  and  intercorporate  relationships 
not  conducive  to  the  public  welfare.  On  the  New  Haven  board  of  directors  there 
was  a  representative  of  the  Pennsylvania  Railroad,  which  railroad  owned  35,000  shares 
of  New  Haven  stock;  there  was  a  representative  of  the  New  York  Central,  which 
owned  35,000  shares;  there  was  a  representative  of  insurance  interests  that  owned 
35,000  shares,  and  a  representative  of  an  express  company  that  had  a  contract  with 
the  railroad;  there  were  directors  who  were  also  directors  of  the  Standard  Oil  Co., 
the  United  Steel  Corporation,  the  Pullman  Co.;  in  fact,  every  other  interest  seemed 
better  represented  on  the  New  Haven  board  than  the  average  stockholder's  interest. 

"There  are  too  many  ornamental  directors  and  too  many  who  have  such  childlike 
faith  in  the  man  at  the  head  that  they  are  ready  to  indorse  or  approve  anything  he 
may  do. 

"The  handling  of  bank  deposits  and  security  sales  of  these  corporations  are  massed 
in  a  few  hands,  carrying  with  them  a  power  and  domination  over  large  amounts  of 
banking  capital  as  well  as  the  control  of  great  railroad  systems.  These  and  other 
evils  as  the  result  of  interlocking  directorates  are  now  well  recognized  and  known, 
and  they  have  been  emphasized  oy  the  disclosures  of  this  investigation. 


EXTENSION"  OF  ^GOVERNMENT  CONTKOL  OF  EAIUtOADS.  31 

"FUNDS  TO  BE  RECOVERED  ON  BEHALF  OF  THE  STOCKHOLDERS. 

"From  the  facts  developed  in  this  investigation,  it  would  seem  that  there  is  little 
question  concerning  the  recovery  of  a  substantial  amount  of  the  stockholders'  money 
that  has  been  wasted. 

"If  any  expenditures  were  made  in  violation  of  the  antitrust  laws  of  the  United 
States,  are  not  such  expenditures  ultra  vires  and  is  it  not  the  legal  obligation  of  the 
directors  to  satisfy  out  of  their  own  fortunes  any  loss  which  results  to  the  company? 

"These  are  all  pertinent  questions  in  the  light  of  the  developments  brought  about 
by  this  investigation. 

"Directors  can  not  without  accountability  deplete  a  corporate  treasury  in  ventures 
which  are  in  violation  of  the  law  of  the  land. 

"DIRECTORS  CONSCIOUSLY  TRANSGRESSING  ANTIMONOPOLY  LAWS. 

"The  evidence  shows  that  in  pursuance  of  the  policy  of  transportation  monopoly 
the  New  Haven  purchased  the  Connecticut  trolleys,  the  Rhode  Island  trolleys,  the 
Massachusetts  trolleys,  steamship  lines,  the  Boston  &  Maine  Railroad,  and  other  means 
of  transportation  that  were  available  and  purchasable.  That  this  plan  was  done  in 
violation  of  the  Federal  statute  it  seems  quite -clear,  for  competition  was  sought  to  be 
destroyed.  That  the  directors  were  conscious  they  were  proceeding  along  lines  that 
were  probably  inhibited  by  law  is  evidenced  by  the  testimony  of  Director  Elton,  that 
as  each  line  was  purchased  some  one  would  ask  the  question  in  the  board  of  directors 
if  it  were  not  in  violation  of  law,  and  that  Mr.  Robbms,  general  attorney  for  the  New 
Haven,  would  state  to  the  board  that  the  New  Haven  charter  permitted  them  to  do 
anything. 

"It  appears,  therefore,  that  not  only  were  these  consolidations  contrary  to  law,  but 
these  directors  were  cognizant  of  that  fact,  and  contented  themselves  with  the  advise 
of  counsel  that  under  the  company's  charter  it  could  do  anything  it  pleased. 

"NEW   HAVEN    MONOPOLY  CORRUPT. 

"This  investigation  has  demonstrated  that  the  monopoly  theory  of  those  controlling 
the  New  Haven  was  unsound  and  mischievous  in  its-effects.  To  achieve  such  monop- 
oly meant  the  reckless  and  scandalous  expenditure  of  money;  it  meant  the  attempt 
to  control  public  opinion;  corruption  of  government;  the  attempt  to  pervert  the 
political  and  economical  instincts  of  the  people  in  insolent  defiance  of  law.  Through 
exposure  of  the  methods  of  this  monopoly  the  invisible  government  which  has  gone 
far  in  its  efforts  to  dominate  New  England  has  been  made  visible.  It  has  been  clearly 
proven  how  public  opinion  was  distorted ;  how  officials  who  were  needed  and  who  could 
be  bought  were  bought;  how  newspapers  that  could  be  subsidized  were  subsidized; 
how  a  college  professor  and  publicists  secretly  accepted  money  from  the  New  Haven 
while  masking  as  a  representative  of  a  great  American  university  and  as  the  guardians 
of  the  interests  of  the  people;  how  agencies  of  information  to  the  public  were  prosti- 
tuted wherever  they  could  be  prostituted  in  order  to  cany  out  a  scheme  of  private 
transportation  monopoly  imperial  in  its  scope. 

"DIRECTORS  CRIMINALLY  NEGLIGENT. 

"It  is  inconceivable  that  these  wrongs  could  have  gone  on  without  interference 
if  the  members  of  the  board  of  directors  had  been  true  to  the  faith  they  owed  the  stock- 
holders. A  number  of  directors  appear  in  many  instances  to  have  voted  without 
knowledge  and  to  have  approved  the  expenditure  of  runny  millions  without  informa- 
tion. According  to  the  te.-aimony  of  same  of  the  directors  they  merely  approved 
what  had  been  done  b  y  some  comm  ittee  or  by  some  officer  of  the  company.  The  direc- 
tors' minutes  reveal  that  it  was  largely  a  body  for  ratification  and  not  authorisation,  as 
the  law  intended  a  board  of  directors  should  be.  None  of  the  directors  would  have 
been  so  careless  in  the  handlihg  of  his  own  money  as  the  evidence  demonstrates  they 
were  in  dealing  with  the  money  of  other  people.  The  directors  actively  or  passively 
acquiesced  in  the  efforts  of  the  Mellen-Morgau-  Rockefeller  regime  to  ex  tend  the  domi- 
nation of  this  corporation  over  the  whole  transportation  field  in  New  England. 

"  If  these  directors  who  were  faithless  to  their  stewardship  were  held  responsible  in 
the  courts  and  at  the  bar  of  public  opinion  for  the  failure  to  do  those  tilings  they  should 
have  done,  the  lesson  to  directors  who  do  not  direct  would  be  very  salutary. 

"Directors  should  be  made  individually  liable  to  civil  and  criminal  laws  fur  the 
manner  in  which  they  discharge  their  trust.  A  corporal  ion  con  be  no  better  or  worse 
than  those  who  operate  it.  It  should  be  just  as  grave  a  crime  to  plunder  stockholders 
or  the  public  through  a  railroad  corporation  as  it  is  to  personally  rob  an  individual. 


32  EXTENSION   OF   GOVERNMENT   CONTROL   OF  RAILROADS. 

"SUBSIDIARY  CORPORATIONS  CONDEMNED. 

"It  was  found  in  the  investigation  of  the  New  Haven  system  that  there  were  336 
subsidiary  corporations,  and  the  books  of  the  NewHayen  road  proper  reflect  only  a 
small  part  of  the  actual  financial  transactions  of  the  railroad.  Many  of  these  subsid- 
iary corporations  served  no  purpose  save  an  evil  one.  They  were  used  to_cover_up 
transactions  that  would  not  bear  scrutiny,  and  to  keep  from  the  eyes  of  public  officials 
matters  that  were  sought  to  be  kept  secret.  The  commission  should  have  the  power  to 
examine  not  only  the  books,  records,  papers,  and  correspondence  of  interstate  carriers, 
but  of  subsidiary  companies  as  well. 

"REMEDY  IN  PUBLIC  CONSCIENCE  AND  LAWS. 

"The  insuring  of  honesty  throughout  the  management  of  the  great  railroads  of  the 
country  is  a  most  important  question  before  the  people  to-day,  and  only  when  through 
exposure  of  wrongdoing  and  an  awakened  public  conscience  coupled  with  effective 
laws  this  result  is  produced,  may  railroading  be  placed  upon  the  high  level  that  it 
should,  occupy.  The  revelations  in  this  record  make  it  essential  for  the  welfare  of  the 
nation  that  the  reckless  and  profligate  financiering  which  has  blighted  this  railroad 
system  be  ended,  and  until  this  is  fully  done  there  will  be  no  assurance  that  the  story 
of  the  New  Haven  will  not  be  told  again  with  the  stockholders  of  some  other  railroad 
evstem  as  the  victims. " 

THE    CHICAGO,     ROCK    ISLAND     &    PACIFIC    RAILWAY    CO. 

Having  reviewed  some  of  the  principal  transactions  of  the  New  York,  New  Haven, 
and  Hartford  Railroad  Co.,  in  defrauding  its  stockholders  and  the  public,  extracts 
will  now  be  submitted  from  the  official  report  of  the  Interstate  Commerce  Commission, 
No.  6834,  dated  July  31,  1915,  entitled  "In  re  financial  transactions,  history,  and 
operation  of  the  Chicago,  Rock  Island  &  Pacific  Railway  Co. 

Owing  to  the  limits  of  space  available  in  this  statement  to  Congress  and  having 
gone  into  the  transactions  previously  investigated  in  considerable  detail,  we  will 
content  ourselves  with  brief  extracts  from  the  official  report  just  mentioned,  which 
when  read  in  full  discloses  a  duplication  of  the  illegal  acts  of  the  other  systems  inves- 
tigated, together  with  some  new  details  respecting  the  salaries  of  its  officers  and  the 
manner  in  which  they  abstracted  for  their  private  uses  from  the  company  treasury 
large  sums  without  accounting  therefor.  The  same  system  of  false  accounting,  ex- 
travagance, waste,  and  the  use  of  the  stockholders'  money  for  controlling  politics  and 
the  press  and  for  other  illegal  acts  is  found  in  the  official  report  of  the  commission. 

SPECULATION,  EXTRAVAGANCE,  AND  EMBEZZLEMENT  BY  OFFICIALS  REDUCES  VALUE 
OF  STOCK  FROM  $200  PER  SHARE  TO  $20 — ONE  OFFICIAL  GETS  $500,000  FOR  10  MONTHS' 
TIME. 

The  results  of  these  illegal  practices  was  to  reduce  the  value  of  the  stock  which 
in  1902  was  $200  a  share  to  $20  in  1914  and  to  put  the  road  in  the  hands  of  a  receiver- 
all  in  the  private  interest  of  a  minority  of  its  directors  without  the  knowledge  of  the 
rest  of  the  board  for  the  purpose  of  further  exploiting  the  stockholders. 

Among  the  acts  so  startling  and  sensational  as  to  vie  in  interest  with  the  wildest 
fiction  should  also  be  mentioned  the  following: 

The  chairman  of  the  executive  committee,  L.  F.  Loree,  in  addition  to  a  salary  of 
$75,000  per  annum,  demanded  and  received  a  contract  giving  him  a  present  or  "bonus  " 
in  an  additional  sum  of  $500,000  after  the  expiration  of  his  five-year  contract.  Owing 
to  trouble  which  arose  between  him  and  the  rest  of  the 'board  after  only  10  mouths' 
service,  he  was  given  a  "bonus"  of  $450,000  to  quit  the  job,  so  that  his  compensation 
for  10  months  exceeded  $500,000. 

A  majority  of  the  officers  seemingly  took  money  from  the  company's  treasury 
whenever  they  desired  without  warrant  of  law  or  without  specifying  the  purpose  the 
money  was  to  be  used  for.  A  stockholder  who  brought  suit  to  secure  an  investigation 
and  an  accounting  of  the  acts  of  the  directors  was  paid  $217,000  to  relinquish  his  suit 
in  order  to  keep  these  facts  from  public  knowledge. 

The  following  extracts  from  the  official  report  of  the  commission,  giving  a  sketch 
of  the  system,  the  methods  by  which  the  directors  squandered  the  funds  of  the  stock- 
holders in  extravagance,  speculations,  and  dishonesty,  and  the  conclusions  of  the 
Interstate  Commerce  Commission,  are  found  on  pages  43  to  61  of  the  report. 

"  In  1902  the  main  line  of  the  Chicago,  Rock  Island  &  Pacific  Railway  Co.  extended 
from  Chicago  to  Denver,  with  branch  lines  to  St.  Paul,  Minneapolis,  and  Kansas  City. 
The  territory  served  is  one  of  the  richest  and  most  prosperous  in  the  country  and  the 


EXTENSION   OF   GOVERNMENT   CONTROL   OF  RAILROADS.  33 

system's  ramification  of  branch  lines  insures  to  it  a  large  volume  of  tonnage.  It  was 
then  thriving  and  its  prospects  were  promising,  its  stock  selling  in  the  markets  of  the 
world  at  more  than  $200  a  share.  In  1914  the  shares  had  fallen  to  $20  and  the  road  is 
now  in  receivers '  hands.  The  evidence  shows  that  the  earnings  of  the  railway  company 
have  steadily  increased,  and  that  in  1914  they  were  the  largest  in  its  history." 

In  1902  plans  were  laid  by  five  directors  to  form  a  syndicate  and  holding  company 
and  secure  control  of  the  road  to  plunder  and  wreck  it. 

The  following  is  from  the  official  record: 

"  SYNDICATE    CONTROL 

"In  1901  Daniel  G.  Reid,  W.  H.  Moore.  J.  H.  Moore,  and  W.  B.  Leeds  purchased 
about  $20.000.000  of  stock  of  the  company,  and  by  the  use  of  proxies  they  soon  became 
members  of  the  board  of  directors.  W.  B.  Leeds  being  made  president  and  D.  G.  Reid 
chairman  of  the  executive  committee.  This  syndicate  procured  the  selection  of  other 
members  of  the  board  of  directors,  notably  F.  L.  Hine,  George  McMurtry.  and  George  T. 
Boggs,  each  of  whom  appears  to  have  acted  and  voted  in  accordance  with  the  wishes 
of  the  members  of  the  syndicate.  One  other  director  stated  that  he  knew  but  little 
of  what  was  being  transacted  in  the  affairs  of  the  railway  company,  and  that  he  was  a 
member  of  so  many  other  boards  of  directors  that  he  had  no  opportunity  to  examine 
into  things  for  himself,  but  had  to  take  the  word  of  those  in  authority.  Thus  the  syndi- 
cate controlled  the  board  through  the  directorships  held  by  themsleves  and  by  those 
subject  to  their  wishes. 

"ORGANIZATION  AND  USE  OF  HOLDING  COMPANIES 

"  In  July,  1902,  the  syndicate  organized  two  holding  companies,  the  Chicago,  Rock 
Island  &  Pacific  Railroad  Co.  of  Iowa,  and  the  Rock  Island  Co.  of  New  Jersey.  The 
railway  or  operating  company  will  be  referred  to  hereinafter  as  the  railway  company, 
and  the  holding  companies  as  the  Iowa  company  and  the  New  Jersey  company, 
respectively.  The  St.  Louis  &  San  Francisco  Railroad  Co.  will  be  referred  to  as  the 
Frisco." 

The  directors  paid  a  large  sum  to  have  a  suit  suppressed  which  would  have  exposed 
their  illegal  transactions.  Upon  page  46  occurs  the  following: 

"A  significant  transaction  at  this  time  is  that  growing  out  of  the  action  of  C.  H. 
Venner,  a  stockholder  of  the  railway  company.  _  He  made  demands  upon  the  officers 
of  the  railway  company  in  December,  1902,  and  in  January,  1903,  for  a  list  of  its  share- 
holders. Being  ignored  he  instituted  on  January  31,  1903,  a  proceeding  in  a  State 
court  of  Illinois  to  enjoin  the  organization  of  the  holding  companies  and  the  exchange 
of  railway  company  stock  for  their  securities.  In  February  and  March,  1904,  the 
railway  company  paid  Venner  $291,000,  ostensibly  in  consideration  of  his  delivery  to 
it  of  securities  of  the  New  Jersey  company  and  of  the  railway  company  valued  at 
$91.000  and  stock  of  the  Nebraska  Central  Railway  and  of  the  Nebraska  Construction 
Co.  of  a  nominal  value  of  $200,000.  Thereupon  the  suit  to  restrain  the  holding  com- 
panies' plan  was  dismissed.  Neither  the  Nebraska  Central  Railway  Co.  nor  the 
Nebraska  Construction  Co.  had  any  road  or  other  tangible  assets,  and  their  stock  is 
therefore  considered  to  be  without  value .  The  conclusion  is  obvious  that  the  payments 
to  Venner  were  in  consideration  of  his  refraining  from  further  prosecuting  in  the  courts 
his  opposition  to  the  syndicate  plans." 

Compensation  and  peculations  of  officers  who  defend  salaries  of  $50,000  to  $75,000 
for  themselves  but  assign  the  wages  of  clerks,  telegraph  operators,  conductors,  and 
brakernen  which,  when  combined,  average  approximately  $2.50  a  day  as  the  reason 
for  the  financial  troubles  of  the  road. 

On  pages  47-50  is  the  following  account: 

"SALARIES  OF  AND  CONTRIBUTIONS  TO  OFFICERS  AND  DIRECTORS. 

' '  The  salaries  paid  to  some  of  the  principal  officers  at  various  periods  were  as  follows : 

Per  annum. 

H.  U.  Mudge,  president . $60, 000 

L.  F.  Loree,  chairman  executive  committee  (one-half  to  be  paid  by  the  Frisco)    75,  000 

R.  A.  Jackson,  vice  president  and  general  solicitor 50,  000 

R.  R.  Cable,  member  of  board  of  directors 32, 000 

W.  B.  Leeds,  president 32,  000 

B.  L.  Winchell,  president 40, 000 

B.  F.  Yoakum,  chairman  executive  committee 30, 000 

Daniel  G.  Reid,  chairman  board  of  directors 32, 000 

C.  II.  Warren,  first  vice  president 35, 000 


34  EXTEXSIOK  OF  GOVERNMENT  CONTROL"  OF  RAILROADS. 

"Mr.  Mudge,  president  of  the  railway  company  and  now  one  of  the  receivers, 
asserted  that  the  troubles  of  the  railway  were  in  a  measure  due  to  increase  of  wages  and 
governmental  regulations.  When  asked  what  wages  he  referred  to  as  being  increased 
he  pointed  out  the  wages  of  clerks,  telegraph  operators,  conductors,  and  brakemen. 
While  he  regarded  the  wages  of  these  minor  employees  as  having  partially  sapped  the 
financial  strength  of  the  railway,  he  declared  that  the  salaries  paid  to  the  higher 
officers  of  the  company  had  no  appreciable  effect  on  its  expenses. 

D.  G.  lleid  upon  the  witness  stand  was  interrogated  and  answered  as  follows: 
'Question.  Mr.  Reid,  do  you  think  these  men  earned  these  high  salaries? 
'Answer.  I  do  not  think  there  is  a  man  who  did  not  earn  more  than  he  was  getting. 
'Question.  In  other  words,  you  defend  paying  these  high  salaries? 
'Answer.  I  defend  nothing.     Here  is  8,000  miles  of  railway;  a  man  who  can  run 
8,000  miles  of  railroad  is  worth  all  he  can  get.' 

"Many  large  contributions  were  made  to  officers  and  directors  of  the  railway  com- 
pany. George  T.  Boggs,  a  director  and  secretary  to  the  board  of  directors  of  the  rail- 
way company,  arid  also  a  director  in  the  two  holding  companies,  admitted  that  he 
served  in  these  capacities  merely  as  a  dummy  for  the  syndicate.  On  the  question  of 
the  rights  of  the  public  to  have  corporate  funds  of  common  carriers  properly  applied, 
he  testified  as  follows: 

"  'Question.  Do  you  consider  that  the  directors  of  a  railway  company,  a  public- 
service  corporation,  have  the  right  to  do  whatever  they  please  with  the  money  of  the 
railway  company? 

"  'Answer.  As  in  their  judgment  seemed  right;  yes. 

"  'Question.  Did  it  ever  occur  to  you  that  the  money  in  the  treasury  of  the  railway 
company  was  the  result  of  taxation  of  the  public  in  passenger  and  freight  tariffs,  and 
that  the  public  had  an  interest  in  the  funds  in  the  treasury? 
'  'Answer.  I  don't  know  that  I  ever  thought  of  it  particularly. 

' '  '  Question .  And  that  the  public  had  a  concern  in  the  funds  of  the  railway  company 
not  being  dissipated  in  order  that  they  might  be  applied  to  improvements  and  bet- 
terments and  to  proper  purposes? 

"  'Answer.  I  never  considered  that  they  were  dissipated. 

"  '  Question.  And  did  it  ever  occur  to  you  that  in  taking  money  from  the  treasury  of 
the  railway  company,  a  public-service  corporation,  an  additional  burden  was  placed 
upon  the  passenger  and  freight  traffic  in  order  to  make  good  the  loss? 

"  'Answer.  No;  I  never  thought  of  it  in  that  light. 

"  'You  don't  believe  it  now,  do  you? 

"  'Answer.     No.' 

"This  opinion  was  also  expressed  in  effect  by  other  officers  and  directors.  It  ap- 
peared to  be  the  idea  of  those  in  control  of  the  railway  that  it  was  no  concern  of  the  public 
what  became  of  the  corporate  funds  so  long  as  rates  were  reasonable.  Those  stating 
this  opinion  apparently  did  not  take  into  consideration  the  fact  that  if  the  funds 
derived  from  transportation  services  are  expended  waettfully  or  corruptly  the  inevi- 
table result  must  be  either  increased  charges  in  order  to  enable  the  railway  company 
to  obtain  money  to  pay  operating  expenses,  or  bankruptcy. 

"Following  are  specific  instances  shown  of  record  of  the  contributions  referred  to: 

"J.  E.  Gorman,  first  vice  president  in  charge  of  freight  and  passenger  traffic,  was 
Becretly  paid  $18,750  per  annum,  making  his  total  compensation  $43,750,  whereas  the 
pay  roll  showed  $25,000. 

"C.  A.  Morse,  chief  engineer,  received  a  salary  of  $15,000  per  annum  and  a  secret 
bonus  of  $3,000  on  the  first  of  each  vear. 

"Upon  the  retirement  of  R.  A.  Jackson  as  general  solicitor  he  was  given  $100,000 
in  cash. 

"As  an  inducement  to  L.  F.  Loree,  chairman  of  the  executive  committee,  to  relin- 
quish, after  10  months'  service,  a  joint  contract  with  the  railway  company  and  the 
Frisco  under  which  he  was  to  receive  a  salary  of  $75,000  per  annum  for  a  period  of  five 
years  and  in  addition  was  to  be  paid  a  bonus  of  $500,000  at  the  expiration  of  the  con- 
tract, he  was  given  bonds  of  the  railway  company  of  a  par  value  of  $450,000.  This 
was  borne  equally  by  the  two  companies,  and  the  proportion  of  the  railway  company 
was  charged  to  profit  and  loss.  The  total  amount  borne  by  the  railway  company  in 
this  transaction  exceeded  $250,000. 

"C.  H.  Warren,  vice  president,  was  given  by  the  railway  company  $150.000  in  par 
value  of  the  common  and  $105,000  in  par  value  of  the  preferred  stock  of  the  New 
Jersey  company  and  $50,000  in  cash.  There  was  no  board  authorization  for  the  latter 
expenditure,  the  item  being  represented  in  the  records  of  the  railway  company  merely 
by  a  voucher  signed  by  D.  G.  Reid. 

"R.  R.  Cable,  a  member  of  the  executive  committee,  received  from  the  railway 
company  $30,000  in  bonds  of  the  Iowa  company,  then  worth  $24,500,  for  hie  services 
in  the  acquisition  of  the  Burlington,  Cedar  Rapids  &  Northern  Railway  Co. ,  and  he  was 


EXTENSION   OF   GOVERNMENT   CONTROL  OF  RAILROADS.  35 

paid  by  the  latter  company  $85,000  iu  the  same  transaction.  Mr.  Cable  also  received 
another  contribution,  which  will  be  referred  to  later. 

"Robert  Mather,  vice  president,  was  given  $25,000  in  cash. 

"As  hereinbefore  indicated,  when  the  capital  stock  of  the  railway  company  was 
increased  to  $75,000,000,  shares  of  the  par  value  of  $880,500  were  placed  iu  the  name 
of  the  president,  to  be  thereafter  distributed  in  accordance  with  the  following  resolu- 
tion of  the  executive  committee  passed  at  a  meeting  held  in  New  York  July  1,  1902: 

"'Resolved, _That  such  portion  as  the  president  may  determine  of  the  shares  of  the 
increased  capital  stock  or  the  company  not  required  for  the  purpose  of  the  foregoing 
resolutions  shall  be  disposed  of  at  par  by  the  president  for  the  benefit  of  such  officers  of 
the  company  as  the  president  shall  elect  and  determine. ' 

"This  stock  was  later  exchanged  for  securities  of  the  Iowa  and  New  Jersey  companies 
in  the  same  manner  as  was  stock  of  the  stockholders  of  the  railway  company. 

"Following  this  exchange  R.  R.  Cable  received  securities  of  "a  market  value  of 
$368,300  for  which  he  paid  $200,000. 

"H.  A.  Parker,  first  vice  president,  received  securities  then  worth  $27,900,  for 
which  he  paid  but  $15,000. 

"Robert  Mather  received  securities  of  a  market  value  of  $145,912  above  his  payments 
therefor. 

"The  contributions  to  officials  of  the  railway  company  in  excess  of  their  salaries 
aggregated  about  a  million  dollars. 

"IRREGULAR  VOUCHER  PAYMENTS. 

"Unexplained  vouchers  for  amounts  aggregating  $72,523.45  were  disbursed  to  the 
officers  of  the  railway  company  for  purposes  not  clearly  denned.  One  such  voucher 
for  $6,823.12  was  drawn  apparently  to  reimburse  W.  H.  Moore  for  losses  sustained  by 
him  in  'supporting  the  market  while  bonds  of  the  railway  company  were  being 
sold.'  The  voucher  was  certified  by  D.  G.  Reid,  'for  the  benefit  of  the  railway 
company. '  No  papers  were  attached  to  the  voucher  and  no  other  information  was 
available  with  respect  to  the  disbursement. 

"Another  voucher  in  favor  of  the  Liberty  National  Bank  of  New  York  City,  in  ex- 
change for  a  cashier's  check  issued  to  Robert  Mather  for  $25,000,  is  charged  to  'general 
expenses'  under  'operating  expenses.'  This  voucher  refers  to  a  miscellaneous  file 
shown  by  the  index  thereto  to  have  comprehended  'contributions  to  campaign 
committee. '  The  file,  however,  was  not  produced,  and  a  diligent  effort  on  the  part 
of  the  accountants  to  secure  it  was  unavailing.  Without  this  file  it  is  impossible  to 
state  the  purpose  for  which  the  money  was  expended,  but  the  generalization  'contri- 
butions to  campaign  committee,'  in  the  light  of  the  practices  indulged  in  by  the 
syndicate  in  question,  is  clearly  suggestive. 

"The  books  of  the  railway  company  reveal  payments  aggregating  $44,066.05  to 
the  Denver  Post.  The  vouchers  attached  read,  'for  advertising  in  editorial  and  news 
columns. '  Other  entries  show  that  three  of  these  vouchers,  aggregating  $20,000,  cover 
a  refund  that  this  newspaper  received  at  the  rate  of  25  cents  per  hundred  on  its  freight 
carried  over  the  lines  of  the  railway  company  from  points  in  Wisconsin. 

"Another  voucher  is  for  $50,000  to  S.  M.  Felton,  for  the  railway's  proportion  of 
amount  '  paid  by  E.  H.  Harriman  and  his  associates  for  money  expended  by  them  to 
secure  the  discontinuance  of  a  line  of  road  being  constructed  in  1900  between  Peoria, 
111.,  and  Clinton,  Iowa,  as  per  agreement  between  R.  R.  Cable,  chairman  of  the  board, 
and  E.  H.  Harriman. ' " 

BY   SPECULATION,    ETC.,    AGGREGATK    OF   LOSSES    OVER   137,000. 

"The  aggregate  losses  sustained  by  the  railway  company  in  connection  with  the 
foregoing  transactions  may  be  summarized  as  follows: 

Expenses  of  maintaining  and  housing  holding  companies,  more  than. . .  $290, 000.  00 

I  Yif  o  deal,  approximately 6, 500, 000.  00 

Alton  deal,  approximately 6,  370, 000.  00 

Trinity  &  Brazos  Valley  Rv.  deal,  morn  than 4, 500,  000.  00 

Consolidated  Indiana  and  Deriog  coal  coBUtaiOM,  at  lra.st 1,300,000.00 

Contributions  or  gratuities  to  officers  and  directors,  about 1, 000, 000. 00 

Venner  transaction 217, 000.  00 

Miscellaneous  and  unexplained  expenditures 72, 523.  45 

"These  items  show  an  aggregate  loss  to  the  railway  companv  of  more  than 
$20,000,000.  In  addition  thereto  it  is  to  be  noted  that  prior  to  .lune  :JO,  1914,  the  rail- 
way company  paid  to  financial  institutions,  in  connection  with  the  issuance  of  bonds, 
corni  lissions  aggregating  more  than  $1,600,000,  and  suffered  discounts  of  more  thau 
$17,700,000. 


36  EXTENSION   OF   GOVERNMENT   CONTROL  OF  RAILROADS. 

INDIVIDUAL    PROFITS     OF    PROMOTERS;     OFFICERS,     AND    DIRECTORS    OF    THE    HOLDING 

COMPANIES. 

"The  amount  of  gains  accruing  to  W.  B.  Leeds,  D.  G.  Reid,  W.  H.  Moore,  and 
J.  H.  Moore  through  their  control  and  manipulation  of  the  railway  company  are 
probably  not  ascertainable.  Reid,  when  interrogated  with  a -view  to  ascertaining 
his  profits  from  the  various  transactions,  explained  that  he  always  burned  his  books 
at  the  end  of  each  month. 

''The  quotations  placed  in  the  record  from  the  stock  market  of  the  New  Jersey 
company  stock  and  the  railway  company  stock  showed  wide  fluctuations.  Whatever 
have  been  the  gains  realized  by  these  persons,  it  is  certain  that  the  present  holders 
of  the  stocks  and  bonds  of  the  holding  companies  have  that  which  is  of  little  or  no 
value. 

REPORTS   TO   STOCKHOLDERS. 

"Misrepresentation  of  assets  in  reports  to  stockholders  appears  to  have  been  a  prac- 
tice of  the  directors  of  the  railway  company.  On  June  30,  1904,  a  book  surplus  was 
claimed  for  the  railway  company  of  $22,343,955.26.  By  June  30,  1914;  the  company 
conceded  a  reduction  of  this  surplus  to  $6,199,841.08,  and  even  this  amount  was 
fictitious. 

******* 

"The  directors  also  reported  as  assets  the  5  per  cent  debenture  bonds  of  the  Iowa 
company,  which  were  in  fact  worthless,  but  which  were  reported  as  worth  nearly 
$6,000,000. 

"In  view  of  the  fact  that  the  reported  value  of  the  'securities'  listed  for  the  year 
1914  was  nearly  $18,000,000  in  excess  of  their  actual  value,  instead  of  a  surplus  of 
more  than  $6,000,000  claimed  by  the  railway  company,  there  should  have  been  shown 
a  deficit  of  over  $11,600,000. 

"Another  misleading  and  objectionable  practice  of  the  railway  company  officials 
was  the  failure  to  state  on  the  pay  roll  the  true  amounts  paid  to  its  officers. 

"The  publication  of  misleading  reports  to  stockholders  can  not  be  too  severely 
condemned,  and  the  individuals  guilty  of  such  acts  should  be  subject  to  adequate 
penalties.'' 

The  bankrupting  of  railways  in  the  United  States  has  invariably  occurred  from 
maladministration  and  speculation  on  the  part  of  the  officers  in  charge,  and  never 
because  of  insufficient  revenues  when  wisely  and  honestly  administered.  Receiver* 
ships  have  always  resulted  from  the  above  cause  or  else  have  been  planned  by  directors 
for  their  own  private  gain.  In  some  cases  the  condition  of  the  companies  did  not 
warrant  receiverships,  even  though  the  directors  had  placed  their  companies  in  an 
embarrassing  condition.  The  receivership  of  the  Rock  Island  system  is  an  example 
of  the  cause  last  mentioned,  and  was  planned  without  the  knowledge  of  the  majority 
of  the  board  by  a  conspiracy  of  a  few  directors  in  which  they  were  joined  by  the  chief 
counsel  of  the  company,  who  afterwards  acted  as  a  receiver  in  their  interest.  ' '  Fake  " 
legal  proceedings  were  had  through  attorneys  employed  fraudulently  to  prevent 
the  stockholders  defending  their  rights. 
'  The  following  is  taken  from  the  official  report: 

RECEIVERSHIP   DELIBERATELY   PLANNED    AND    EXECUTED    BY    OFFICIALS   FOR   PURPOSE 
OF   DEFRAUDING   STOCKHOLDERS. 

"The  syndicate  decided  to  put  the  railway  into  a  receivership.  The  general 
counsel  of  the  railway  company  at  the  suggestion  of  W.  H.  Moore,  a  member  of  the 
syndicate,  drew  the  bill  asking  for  a  receivership  and  engaged  an  attorney  ostensibly 
to  represent  the  other  side.  The  bill  was  placed  in  the  nands  of  this  attorney  with 
the  name  of  the  complainant  omitted  and  he  was  instructed  by  the  general  counsel 
to  locate  some  creditor  of  the  railway  company  willing  to  act  as  complainant.  There 
was  an  agreement  between  the  general  counsel  and  this  attorney  as  to  the  parties  the 
latter  would  recommend  to  the  court  as  receivers,  the  general  counsel  agreeing  to 
instruct  the  attorney  appearing  for  the  railway  company  to  acquiesce  in  the  recom- 
mendations so  made. 

"The  board  of  directors  of  the  railway  company  was  not  informed  of  the  intention 
to  file  a  bill  for  receivership  and  at  no  meeting  of  the  board  was  any  authority  ever 
given  for  such  action.  Members  of  the  board  of  directors  not  in  the  confidence  of 
the  syndicate  were  kept  in  ignorance  of  the  fact  that  such  a  bill  had  been  prepared. 
The  stockholders  had  no  information  of  the  purpose  to  put  the  railway  company  into 
a  receivership,  although  a  stockholders'  meeting  was  held  after  the  date  upon  which 
the  receivership  bill  was  completed  by  the  general  counsel,  and  this  general  counsel 


EXTENSION   OF   GOVERNMENT   CONTROL   OF   RAILROADS.  37 

attended  the  meeting.  According  to  the  testimony,  the  bill  was  completed  by  the 
general  counsel  March  29,  1915,  and  the  fact  that  it  was  to  be  filed  whenever  desired 
by  those  in  authority  was  known  only  to  certain  insiders.  The  testimony  clearly 
establishes  the  fact  that  the  ^  railway  company  could  easily  have  paid  the  debt  of 
$16,000  upon  which  the  receivership  application  was  based,  and  that  arrangements 
probably  could  have  been  made  to  meet  all  pressing  obligations  of  the  railway  com- 
pany. 

"The  creditor  at  whose  instance  the  receivership  application  was  filed  appeared  as 
complainant  by  request.  R.  P.  Lament,  the  president  of  the  American  Steel  Foun- 
dries, the  complainant,  testified  that  he  would  not  have  thought  of  bringing  such  a 
proceeding  against  the  railway  company  unless  he  had  understood  that  it  would  be 
regarded  as  not  unfreiendly  but  as  a  friendly  act  to  oblige  the  railway  company.  He 
only  consented  that  his  company  should  appear  as  complainant  when  he  was  assured 
that  this  course  was  in  accordance  with  the  wishes  of  the  railway  company  and  that 
his  company  was  not  to  have  any  care  or  expense  in  the  preparation  of  papers  or  pay- 
ment of  counsel  fees.  The  suit  was  not  a  bona  fide  proceeding  to  collect  a  debt,  but 
was  instituted  to  carry  out  the  purposes  and  schemes  of  the  syndicate  controlling  the 
railway. 

"N.  L.  Amster,  who  was  elected  to  the  board  of  directors  of  the  railway  company 
by  the  minority  stockholders  at  the  stockholders'  meeting  held  in  Chicago,  April  12, 
1915,  believing,  according  to  his  testimony,  that  no  sincere  effort  was  being  made  by 
other  members  of  the  board  to  finance  the  obligations  of  the  railway,  undertook  to 
assist  in  raising  about  $6,000,000  needed  by  the  railway  to  meet  obligations  soon  there- 
after to  mature.  On  April  16, 1915,  he  met  and  conferred  with  Messrs.  James,  McLean, 
and  Schumacher,  all  directors  of  the  railway  and  members  of  the  executive  committee, 
and  discussed  the  company's  finances.  These  three  expressed  approval  of  his  pur- 
pose to  negotiate  for  the  money.  Amster  testified  that  he  had  secured  assurances  for 
the  furnishing  of  the  money  from  responsible  Boston  bankers  on  securities  which  the 
railway  company  had.  When  he  arrived  in  New  York  on  the  morning  of  April  20  to 
report  this  fact  he  went  to  the  office  of  the  railway  company  and,  quoting  his  testi- 
mony, '  could  not  find  anybody  there  that  would  say  anything,  except  a  lot  of  people 
moving  back  and  forth.  I  left  the  office  and  found  on  the  ticker  that  the  Rock  Island 
had  been  put  in  the  hands  of  a  receiver.'  This,  Amster  testified,  was  the  first  informa- 
tion he  had  of  the  receivership  or  that  such  a  step  was  in  preparation,  yet  he  was  a 
director  of  the  road  and  after  the  stockholders'  meeting  in  Chicago,  April  12,  traveled 
from  Chicago  to  New  York  with  Roberts  Walker,  the  general  counsel  of  the  railway 
company." 

It  will  be  remembered  that  the  bill  was  completed  by  the  general  counsel  on 
March  29,  this  fact  being  known  only  to  a  special  few. 

The  bill  was  filed  April  20.  The  records  of  the  New  York  stock  market  reveal  that 
the  railway  stock  was  inactive  until  the  day  this  bill  was  completed,  March  29.  Then 
the  stock  began  to  be  largely  dealt  in,  and  the  price  increased  from  $20  to  $39  a  share. 
When  the  bill  was  filed  and  receivers  were  appointed  the  stock  d.ropped  from  $39  to 
$20  a  share. 

It  is  a  forceful  commentary  on  the  methods  by  which  a  great  railway  may  be  manipu- 
lated into  a  receivership  when  it  is  noted  that  the  general  counsel,  after  drawing  the 
bill  for  a  receivership,  sold  hia  stock,  and  the  local  counsel,  who  represented  the  rail- 
way company  in  the  receivership  proceedings,  owned  no  stock  in  the  railway  company, 
and  that  none  of  those  directly  participating  in  the  receivership  proceedings  had  any 
financial  interest  in  the  railway  company.  The  real  owners  of  the  railway — the  stock- 
holders, the  security  holders,  and  the  directors,  except  those  composing  the  syndicate 
and  in  its  confidence — were  in  ignorance  of  the  receivership  application.  Mr.  Mudge, 
former  president  of  the  railway  company,  is  one  of  the  receivers. 

The  general  counsel  for  the  railway  ^  company,  who  planned  the  receivership  in 
obedience  to  the  will  of  the  syndicate,  is  now  counsel  for  the  receivers. 

SUMMARY  AND   CONCLUSION. 

This  review,  giving  a  brief  glance  at  the  wild  speculations,  frauds,  and  conspiracies 
of  the  officials  to  plunder  and  wreck  the  properties  intrusted  to  their  care  and  place 
heavy  burdens  upon  both  the  stockholders  and  public,  needs  no  further  commentary 
than  the  closing  words  of  the  Interstate  Commerce  Commission  in  its  report: 

'The  property  of  the  railway  company  will  be  called  upon  for  many  years  to  make 
up  the  drain  upon  its  resources  resulting  from  transactions  outside  the  proper  sphere 
in  which  stockholders  had  a  right  to  suppose  their  moneys  were  invested.  This  record 
emphasizes  the  need  of  railway  directors  who  actually  direct.  There  are  too  many 
passive  directors  who  acquiesce  in  what  is  being  done  without  knowledge  and  with- 


38  EXTENSION  OF  GOVERNMENT  CONTROL  OF  RAILROADS. 

out  investigation.  A  director  of  a  railroad  is  a  quasi  public  official  who  occupies  a 
position  of  trust.  A  director  who  submits  blindly  to  the  exploitation  of  his  company 
is  a  party  to  its  undoing  and  he  should  be  held  responsible  to  the  same  extent  as  if  he 
had  been  a  principal  instead  of  an  accessory  before  the  fact.  The  greater  his  promi- 
nence the  greater  his  responsibility  and  the  greater  his  dereliction.  Obviously  a  man 
of  large  affairs  could  not  attend  to  all  the  details  in  intricate  transactions,  but  it  ia 
inconceivable  that  a  director  of  ordinary  business  prudence  and  sagacity  would  sanc- 
tion large  expenditures  without  an  inquiry  as  to  the  purposes  of  such  disbursements. 
So  long  as  this  situation  exists,  however,  it  suggests  the  need  of  a  law  to  charge  such 
directors  with  individual  responsibility  for  the  dissipation  of  corporate  funds. 

"The  Clayton  antitrust  act,  which  becomes  effective  October  15,  1916,  will  make  it 
unlawful  for  any  person  at  the  same  time  to  be  a  director  in  two  or  more  competing 
corporations,  any  one  of  which  has  a  capital,  surplus,  or  undivided  profits  aggregating 
more  than  $1,000,000,  but  common  carriers  are  expressly  exempted  from  its  applica- 
tion. It  should  be  just  as  grave  _an  offense  for  an  official  of  a  railway  to  be  faithless  to 
his  trust  for  financial  gain  as  it  is  for  an  elected  official  of  the  Government  to  betray 
his  trust  for  money  reward. 

"By  this  case  the  need  of  some  limitations  on  the  issuance  of  stocks  and  bonds  by 
common  carriers,  whether  directly  or  through  holding  company  devices  or  otherwise, 
is  again  demonstrated." 

THE    LOUISVILLE    A   NASHVILLE    RAILWAY   SYSTEM. 

This  railway  system  was  investigated  by  the  Interstate  Commerce  Commission. 
The  results  of  its  investigation  are  to  be  found  in  the  official  report  of  the  commission 
No.  6319,  dated  February  16,  1915,  entitled:  "In  re  Financial  Relations,  Rates  and 
Practices  of  the  Louisville  &  Nashville  Railroad  Co.,  the  Nashville,  Chattanooga  & 
St.  Louis  Railway,  and  other  Carriers." 

This  investigation^was  the  result  of  a  resolution  of  the  United  States  Senate, 
prompted  by  complaints  of  the  public  respecting  illegal  acts  of  the  above  company 
and  its  subsidiaries,  in  which  it  requested^  the  Interstate  Commerce  Commission  to 
inquire  into  the  financial  affairs  and  capitalization  of  the  company,  its  practices,  and 
its  efforts  to  illegally  influence  or  control  politics,  legislation,  and  public  opinion. 

Because  of  the  fact  that  some  of  the  records  and  accounts  of  the  company  had  been 
burned  by  them  and  the  further  fact  that  the  commission  was  permitted  by  the  com- 
pany to  inspect  but  part  of  those  which  remained,  and  the  further  fact  that  the  officials 
of  the  road  and  other  witnesses  summoned  to  appear  before  the  commission  refused 
to  testify,  the  commission  was  unable  to  ascertain  but  part  of  the  facts.  The  testi- 
mony obtained  was,  however,  sufficient  to  incriminate  tne  company  in  many  unlaw- 
ful acts,  among  the  most  important  of  which  were  the  violation  of  laws,  both  Federal 
and  State,  in  respect  to  monopolies ;  the  use  of  the  stockholders '  money  to  control  legis- 
lation, politics,  and  the  press;  and  the  deceptive  manner  in  which  the  accounts 
were  kept  respecting  the  capital  investment  and  the  operating  expenses. 

An  added  romantic  interest  attaches  to  this  report,  since  it  includes  correspondence 
between  two  railroad  presidents,  who  proudly  styled  themselves  "  Pizarro  "  and  "  Cor- 
tez,"  joyfully  imagining  they  have  "subjected  the  natives"  and  can  now  divide  the 
Western  Hemisphere  between  them. 

On  account  of  the  refusal  of  certain  officials  to  testify  before  the  commission  regard- 
ing their  acts,  an  appeal  was  made  to  the  Supreme  Court  of  the  United  States,  which 
court,  in  December;  1917,  issued  a  mandamus  directing  these  witnesses  to  appear 
before  the  commission  and  testify.  (  When  this  ^additional  evidence  is  taken,  the 
result  will  be  to  make  the  investigation  of  added  interest. 

As  the  stories  of  all  the  railway  systems  investigated  by  the  commission  are  nearly 
identical  and  include  practically  all  of  the  same  illegal  acts,  we  will,  for  lack  of  space, 
record  only  some  of  the  principal  features  brought  out  in  this  case. 

The  following  brief  extracts  from  the  commission's  report,  outlining  the  history  of 
the  road,  its  accounting  as  to  capitalization,  operating  expenses,  etc.,  appear  in  pages 
168-173: 


"On  November  10,  1913,  immediately  following  the  adoption  of  the  Senate  resolu- 
tion above  referred  to,  the  commission  ordered  an  investigation  into  the  questions 
presented  and  served  formal  notice  of  tibia  investigation  upon  the  carriers  concerned. 
Thereafter  examiners  of  the  commission  were  directed  to  examine  the  accounts, 
records,  and  memoranda  of  the  Louisville  &  Nashville  Railroad  Co.  and  the  Nashville, 
Chattanooga  &  St.  Louis  Railway,  with  a  view  to  securing  all  information  in  the  files 
of  these  carriers  that  would  throw  .light  upon  the  questions  contained  in  the  Senate 
resolution.  Certain  obstructions  have  been  placed  in  the  way  of  the  commission 'a 


EXTENSION  OF  GOVERNMENT  CONTROL  OF  RAILROADS.  39 

examiners  by  the  carriers,  and  these  will  be  referred  to  later.  The  facts  stated  herein 
were  secured  from  the  annual  and  statistical  reports  and  the  contracts  and  tariffs 
on  file  with  the  commission;  from  such  of  the  carriers'  records  and  accounts  as  were 
voluntarily  submitted  by  them;  from  testimony  given  at  formal  hearings  in  other 
cases  before  the  commission;  ami  in  a  few  cases,  that  will  be  indicated,  from  inter- 
views by  the  commission's  examiners  with  railroad  officials  and  other  persons.  The 
questions  presented  by  the  resolution  will  be  stated  and  answered  in  numerical 
order,  accompanied  by  such  comment  as  seems  necessary.  Following  the  report 
will  be  found  an  appendix  illustrating  and  supplementing  certain  of  the  answers." 

INTEREST  OP  THE   LOUISVILLE    &  NASHVILLE   RAILROAD   CO.   IN   OTHER   RAILROADS. 

The  Louisville  &  Nashville  Railroad  Co.  was  incorporated  in  Kentucky  in  1850. 
The  line  from  Louisville  to  Nashville,  185.81  miles  in  length,  was  completed  and 
placed  in  operation  in  1859,  forming  the  nucleus  of  the  present  system.  Various 
extensions  have  since  been  constructed,  aggregating  399.56  miles,  and  making  a 
total  of  585.37  miles  constructed  by  the  company  under  its  own  charter.  The  annual 
report  of  this  carrier  to  its  stockholders  for  the  year  ended  June  30,  1913,  shows  that 
it  owned  or  controlled  on  that  date  7,889.77  miles  of  the  road.  A  comparison  of  the 
miles  of  road  constructed  by  this  company  under  its  own  charter  with  the  total  miles 
of  road  owned  or  controlled  by  it  well  illustrates  its  activity  in  securing  control  of 
other  railroads. 

The  several  lines  acquired  by  the  Louisville  &  Nashville  through  purchase,  lease, 
control,  or  otherwise,  together  with  the  dates  of  acquisition  and  the  length  of  each, 
are  listed  under  appropriate  titles  in  Appendix  A  to  this  report. 

OVER  $16,000,000  CHARGED  IN   BOOKS  AS   COST  OF  ROAP  BUT  NOT  EXPENDED.     „ 

' '  Before  the  Louisville  &  Nashville  advised  the  commission  that  such  of  its  records 
as  were  made  prior  to  August  28,  1906,  would  not  be  submitted  for. inspection,  sched- 
ules of  most  of  the  cost  of  road  accounts  had  been  drawn  from  the  ledgers  preparatory 
to  completing  the  analysis  of  the  accounts  frum  information  to  be  secured  from  the 
journals  and  other  records  of  original  entry.  While  a  complete  analysis  of  the^e 
accounts  was  prevented  by  the  Louisville  &  Nashville  the  preliminary  analysis  was 
sufiieient  to  indicate  that  the  cost  of  road  account  is  heavily  burdened  with  charges 
which  do  not  represent  actual  construction  cost.  From  such  incomplete  information 
it  is  concluded  that  at  least  $16,000,000  shown  in  the  cost  of  road  accounts  covers 
items  which  should  not  be  charged  as  a  part  of  the  cost  of  this  carrier's  road,  as  follov,  a: 

Discount  on  stock $1, 440, 018.  (;0 

Other  expenses  in  connection  with  the  sale  of  stock 32.  671.  4S 

Discount  on  bonds 2, 192, 142.  57 

Other  expenses  in  connection  with  the  sale  of  bonds 8,  537.  Go 

Interest  and  dividends 1,  917,  535. 13 

Amounts  credited  to  profit  and  loss: 

For  reasons  not  stated $2,  640, 000.  00 

To  provide  a  surplus  in  order  that  a  stock  dividend 

of  100  per  cent  might  be  paid 6,  300,  000.  00 

To  raise  book  value  of  stock  above  the  actual  cost  of 

acquirement 1, 422, 784. 00 

To  adjust  difference  between  advances  made  for 
construction  and  par  value  of  bonds  received  in 

settlement  therefor 78,  447.  72 

10,  441,  231.  72 

16, 032, 136. 85 

"  The  above  statement  is  illustrative  of  the  character  of  charges  which  the  carrier 
has  included  in  its  cost  of  road  account.  A  full  examination  of  the  carrier's  accounts 
might  disclose  conditions  under  which  some  of  the  above  amounts  could  be  properly 
charged  to  cost  of  road  account,  but  it  is  also  possible  that  other  improper  items  would 
be  found  which  would  greatly  augment  the  amount  shown." 

STOCK  DIVIDEND  OP  100  TO  200    PER    CENT    DECLARED  AND    EXCESSIVE   CHARGES  MADE 

TO   PROPERTY   ACCOUNT. 

The  extracts  referring  to  the  above  subjects  are  taken  from  pages  171-173  of  the 
commission's  report. 

As  shown  in  the  above  table,  a  stock  dividend  of  100  per  cent  was  declared  bv  the 
Louisville  &  Nashville  on  October  6,  1880.  According  to  a  corporate  history  ol  thia 


40  EXTENSION   OF  GOVERNMENT   CONTROL   OF  RAILROADS. 

railroad  which  was  found  in  its  office,  10  stock  dividends  were  declared  by  this  com- 
pany between  1860  and  1891. 

"To  make  possible  the  stock  dividend  of  100  per  cent  declared  on  October  6,  1880, 
the  amount  of  surplus  was  arbitrarily  increased  by  raising  the  book  value  of  certain 
assets.  From  the  corporate  history  above  referred  to  it  appears  that  when  this  divi- 
dend was  declared  the  book  value  of  the  carrier's  property  exceeded  its  capital  stock 
liability." 

******* 

"  In  declaring  this  stock  dividend  the  directors  were  confronted  with  the  fact  that, 
notwithstanding  the  excess  of  cost  of  property  over  the  capital  stock  liability,  the 
entire  net  surplus  on  October  1,  1880,  amounted  to  only  $3,671,383,  which  was  insuffi- 
cient to  pay  the  full  amount  of  the  dividend.  To  meet  this  situation  the  assets  of  the 
company  were  revalued,  and  the  board  of  directors  voted  that  the  book  value  of 
certain  assets  should  be  increased.  Accordingly  entires  were  made  on  the  books  of 
the  company  crediting  the  profit  and  loss  account  and  correspondingly  increasing  the 
book  value  of  the  following  assets  in  the  amounts  shown  below  to  $7,212,226. 

"The  above-mentioned  entries  brought  the  profit  and  loss  account  to  $10.883,609, 
to  which  was  charged  the  100  per  cent  dividend  of  $9,065.000. 

"  The  above  facts  illustrate  the  manner  in  which  permanent  improvements  on  the 
Louisville  &  Nashville  .have  in  the  past  to  a  large  extent  been  made  out  of  earnings 
and  subsequently  charged  to  the  capital  account.  As  the  commission  in  its  annual 
reports  has  previously  pointed  out,  only  by  the  fullest  publicity  and  public  super- 
vision of  stock  and  bond  issues  may  such  increasing  of  the  capital  accounts  of  carriers 
at  the  expense  of  the  public  be  prevented." 

******* 

"EXCESSIVE  CHARGES  TO  PROPERTY  ACCOUNT. 

"  The  issued  capital  stock  of  this  carrier  amounts  to  $16.000.000,  par  value,  of  which 
$15.984,787.50,  par  value,  is  outstanding.  It  appears  that  cash  aggregating  only 
about  $9,831,840.77  was  received  for  this  stock,  while  an  amount  exceeding  $8,107,- 
398.50  was  given  to  stockholders  in  the  form  of  stock  dividends  and  by  the  sale  of  stock 
at  prices  below  par  and  also  below  market  value.  Included  in  this  amount  is  a  stock 
dividend  of  200  per  cent  on  the  outstanding  capital,  which  was  authorized  by  the 
board  of  directors  on  August  10, 1873.  The  dividend  as  originally  declared  amounted 
to  $4.324.032.96,  which  was  charged  to  the  carrier's  property  investment  account  on 
July  31, 1873,  as  an  offset  to  the  carrier's  liability  for  stock  issued  from  which  no  funds 
were  derived.  Later  the  dividend  was  increased  $251,671.79,  which  amount,  how- 
ever, was  not  charged  to  property  investment  but  to  profit  and  loss.  Of  this  amount 
$181,567.66  was  recorded  in  the  books  by  an  entry  dated  June  30, 1875.  and  represented 
the  dividends  of  200  per  cent  on  $91,201.44  of  capital  stock  held  in  the  treasury." 

HOW  THE  DIRECTORS  SPENT  LARGE  SUMS  OF  THE  STOCKHOLDERS'  MONEY  TO  CONTROL 
THE  PRESS,  POLITICS,  AND  LEGISLATION  AND  TO  INFLUENCE  PUBLIC  SENTIMENT,  FOR 
WHICH  PURPOSE  THEY  FORMED  THE  "TENNESSEE  RAILROAD  ASSOCIATION";  OTHER 
"FAKE"  ORGANIZATIONS  FOR  THE  SAME  PURPOSE  WERE  FORMED. 

The  following  extracts  are  from  pages  230  to  233  of  the  report: 

'  EXPENSES  FOR  THE  PURPOSE  OF  MAINTAINING  POLITICAL  AND  LEGISLATIVE  AGENTS. 
< 

"  Expenditures  by  the  Louisville  &  Nashville  during  this  period  which  appear  to 
have  been  for  the  purpose  of  maintaining  political  and  legislative  agents  amounted 
to  $23,274.41.    This  amount  was  distributed  as  follows: 
Expenditures  for  securing  copies  of  and  information  concerning  legislative 

bills  of  particular  interest  to  the  Louisville  &  Nashville $1, 413. 58 

Expenditures  directly  assignable  to  specific  legislation 5,  596. 60 

Contributions  to  various  committees  or  associations  for  the  purpose  of  influ- 
encing legislation 6, 611. 29 

Expenditures  on  account  of  legislative  agents  in  general 9, 652 . 94 

"FOR  THE  PURPOSE   OF  INFLUENCING  PUBLIC   SENTIMENT. 

"The  accounts  of  the  Louisville  &  Nashville  disclose  that  between  September  1, 
1906,  and  July  1,  1914,  this  carrier  expended  at  least  $59,322.48  for  the  purpose  of 
creating  public  sentiment  in  favor  of  its  plans. 

"  Of  this  amount,  over  $53,000  was  spent  in  a  publicity  campaign  in  Alabama  in  the 
endeavor  to  mold  public  opinion  through  the  medium  of  the  press.  Part  of  the  balance 


EXTENSION   OF   GOVERNMENT   CONTROL   OF  RAILROADS.  41 

was  contributed  by  the  Louisville  &  Nashville  to  a  fund  made  up  by  numerous  car- 
riers to  finance  a  campaign  in  Louisiana  to  prevent  the  change  of  tax  laws.  In  order 
that  the  railroads  concerned  might  preserve  an  outward  appearance  of  indifference  in 
regard  to  the  legislation  in  question,  the  contributions  for  this  purpose  were  placed 
in  the  hands  of  a  bank  to  be  disbursed  by  it  as  if  in  furtherance  of  banking  interests. 
If  the  commission's  examiners  had  been  accorded  access  to  the  correspondence  files 
of  this  carrier  and  to  its  accounts  prior  to  1906,  there  seems  no  doubt  that  information 
as  to  other  substantial  expenditures  for  the  purposes  referred  to  in  the  question  would 
have  been  secured. 

"TENNESSEE  RAILROAD  ASSOCIATION. 

"  The  Louisville  &  Nashville  was  one  of  the  railroads  which  about  1884,  for  the 
purpose  of  combating  adverse  legislation  in  Tennessee,  formed  the  Tennessee  Railroad 

Association." 

OVER  7,000,000  MILES  OF  FREE  TRANSPORTATION  GIVEN  TO  LEGISLATORS,  GOVERNORS, 
JUDGES,  AND  OTHER  OFFICIALS  AND  FRIENDS.  LETTER  TO  "DEAR  BRIBE  GIVER." 

In  the  testimony  taken  during  these  investigations  by  the  commission,  which  ia 
printed  in  a  volume  of  519  closely  printed  pages  (S.  Doc.  No.  461,  64th  Congress, 
1st  sess.,  191G),  over  150  pages  of  testimony  appear  in  reference  to  bribing  of  legis- 
lators, chiefly  through  passes,  which  aggregate  over  7;  000, 000  miles  of  free  transporta- 
tion. These  passes  were  accepted  by  governors,  and  in  many  cases  by  judges,  as  well 
as  by  more  than  90  per  cent  of  the  members  of  the  legislatures  of  the  various  States 
through  which  the  lines  passed.  That  these  passes  were  understood  by  the  legislators  as 
bribes  is  clearly  shown  in  letters  where  they  promise  the  railway  officials  to  ''give 
them  whatever  they  wanted"  in  return  for  the  passes.  An  interesting  letter  is  one 
introduced  in  the  evidence,  in  which  the  writer  addresses  the  railway  official  as 
"Dear  Bribe  Giver." 

[J.  A.  Clement,  lawyer,  11-12  Baker  Building.] 

DICKSON,  TENN.,  October  7,  1915. 
Mr.  D.  G.  HUDSON, 

Nashville,  Tenn. 

DEAR  BRIBE  GIVER:  You  promised  rne  Saturday  you  would  send  pass  for  Mr.  J.  C. 
from  Dickson  to  Nashville  and  return,  Monday,  but  you  overlooked  your  hand  again. 
Luke  must  have  you  thinking.     Please  send  it  by  the  2.15  train  to-morrow,  if  possible. 
Yours  truly, 

J.  A.  CLEMENT. 

DIVISION  OF  THE  NEW  WORLD — TWO  RAILWAY  PRESIDENTS  APTLY  CALLING  THEM- 
SELVES CORTEZ  AND  PIZARRO,  BELIEVING  THEY  HAD  SECURED  THE  CONTROL  OP 
THE  AMERICAN  PEOPLE,  PROPOSED  A  DIVISION  OF  AMERICA  BETWEEN  THEM. 

In  the  investigation  of  the  records  of  the  Louisville  &  Nashville  Railroad  Co., 
letters  were  discovered  between  Milton  H.  Smith,  president  of  the  L.  &  N.  Road, 
and  Samuel  Spencer,  president  of  the  Southern  Railway,  giving  vent  to  their  full- 
ness of  joy  in  having  as  they  thought  obtained  control  of  the  country  as  had  Cortez 
and  Pizarro  of  the  natives  four  centuries  ago.  This  aptly  illustrates  the  illimitable 
ambition  of  the  railway  financiers.  The  following  from  the  letters  of  these  two  rail- 
road presidents  is  extracted  from  pages  369-372  of  the  evidence  and  report  of  the 
Interstate  Commerce  Commission. 

A  letter  from  President  Smith,  of  the  Louisville  &  Nashville  Railroad,  to  President 
Spencer,  of  the  Southern  Railway: 

[Personal  and  confidential.] 

ON  PENNSYLVANIA  RAILROAD  TRAIN  No.  21, 

February  22,  1896. 
SAMUEL  SPENCER,  Esq.,  . 

President  Southern  Hailway,  60  Broadway,  New  York  City. 
DEAR  SIR: 

PIZARRO.  How  shall  we  divide  the  new  world? 

CORTEZ.  I  will  take  North  America  and  you  can  have  all  of  South  America,  except 
,  and  neither  of  us  will  do  anything  to  the  Isthmus  without  notice  to  and  cooper- 
ation of  the  other. 


42  EXTENSION   OF   GOVERNMENT   CONTROL   OF   RAILROADS. 

PIZARRO.  While  Patagonia  is  not  a  very  large  or  important  part  of  the  world,  yet, 
perhaps,  it  is  as  much  as  I  can  tote. 

Refer  to  typewritten  report  of  our  interview  at  Kenesaw,  Ga.,  on  October  28,  1894, 
and  to  the  interviews  and  correspondence  that  have  taken  place  since  that  date,  and 
to  that  portion  of  our  interview  of  this  morning  relating  to  the  future  of  certain  railroads 
that  are  or  may  be  tributary  or  competitive  with  roads  controlled  by  the  L.  &  N.  R.  R. 
and  the  Southern  Ry. 

May  it  not  be  well  to  review  the  subject  and  perhaps  make  our  understandings  more 
specific? 

Your  affairs,  since  our  interview  in  October,  1894,  progressed  with  rapidity,  and 
without,  so  far  as  I  know,  encountering  serious  difficulties.  You  have  acquired  the 
G.  S.  &  F.,  the  Atlanta  &  Florida,  and  the  Central  Railroad  has  been  reorganized  in 
accordance  with  your  plans.  I  do  not  recall  now  what  has  been  done  with  the  Macon 
&  Northern,  nor  what  has  been  done  with  the  G.  M.  &  G.,  Macon  &  B'ham,  and  one 
or  two  other  roads,  although  I  believe  you  told  me  that  your  intention  was  to  allow  the 
Macon  &  B'ham  to  be  abandoned.  The  Paducah,  Tenn.  &  Alabama  and  Tenn. 
Midland  Rds.  have  been  disposed  of  as  anticipated.  The  L.  &  N.  will  not  compete 
for  the  control  of  the  M.  &  C.  Rd.  The  L.  &  N.  will  not  compete  for  the  control  of  the 
B'ham,  Sheffield  &  Tenn.  River  Rd.,  provided  you  will  acquire  it,  should  it  become 
necessary  to  do  so  to  prevent  its  extension  into  Birmingham,  or  will  not  permit  it  to 
get  into  a  position  where  it  may  become  a  disturber.  The  L.  &  N.  Rd.  will  not  con- 
pete  for  the  control  of  the  Mobile  &  Birmingham  with  the  expectation  that  you  will 
acquire  it.  It  is  not  clear  what  disposition  ought  to  be  made  of  the  Georgia  &  Ala- 
bama Railroad. 

******* 

I  have  advised  Mr.  Belmont  of  our  agreement  that  neither  party  will  acquire  the 
property  of  the  Marietta  &  North  Georgia  Railroad  Co,  without  the  consent  of  the 
other.    You  may,  therefore,  freely  communicate  with  him  upon  the  subject,  and 
I  assume  he  will  do  likewise. 
Yours,  truly, 

,  President. 

Letter  from  Samuel  Spencer,  president  of  the  Southern  Railway,  to  M.  H.  Smith, 
president  of  the  Louisville  &  Nashville  Railroad  Co.: 

NEW  YORK,  February  29,  1896. 
Mr.  M.  H.  SMITH, 

President  L.  &  N.  R.  R.,  Louisville,  Ky. 
DEAR  SIR:  Your  letter  of  the  22d  instant. 

PIZARRO.  Since  our  last  conversation,  the  division  of  the  New  World  between  us 
haa  made  some  progress. 

^  CORTEZ.  Yes;  you  seem  to  have  acquired  Patagonia,  and  I  have  secured  a  con- 
siderable part  of  North  America  which  touched  my  former  territory,  but  it  seems 
to  me  you  have  acquired  a  considerable  neck  of  the  Isthmus  which  is  the  connecting 
link  between  us.  Was  it  understood  that  connecting  links  which  touched  both  of 
us  should  be  a  matter  of  consultation  before  acting  or  not? 

PIZARRO.  *  *  *  I  agreed  that  it  is  desirable  to  renew  the  subject  and,  if  prac- 
ticable, to  make  our  understanding  more  specific.  The  principles  on  which  1  think 
this  understanding  should  be  based  are: 

(1)  That  neither  the  L.  <fc  N.  nor  the  Southern  shall  acquire  lines  in  the  territory 
of  the  other,  and  that  lines  connecting  with  or  touching  one  and  not  the  other  shall 
be  regarded  as  in  the  territory  of  the  one  which  they  connect  or  touch. 

(2)  That  neither  will  acquire  lines  allied  by  former  ownership,  lease,  or  otherwise, 
to  the  other,  and  which  at  the  moment  are  not  controlled  by  reason  of  pending  reor- 
ganizations or  other  cause. 

(3)  That  neither  will  acquire  lines  which  connect  with  or  touch  both,  either  directly 
or  through  subordinate  or  controlled  lines  without  previous  consultation  and,  if 
possible,  agreement. 

(4)  That  neither  will  foster  the  construction  of  new  lines  or  the  completion  of 
unfinished  ones  into  the  territory  of  the  other,  but  when  questions  with  reference 
to  such  lines  arise,  we  shall  proceed  by  agreement  with  each  other,  if  possible. 

Will  you  please  consider  this  and  say  if  such  a  declaration  of  principles  is  satisfactory? 
******* 

Confirming  our  verbal  understanding  of  the  22d  instant,  I  beg  to  say  that  we  will 
give  no  encouragement  to  the  construction  of  such  a  line  without  previous  consulta- 
tion and  understanding  with  you,  but  if  the  present  projectors,  or  others,  develop 


EXTENSION   OF   GOVERNMENT   CONTROL  OF   RAILROADS.  43 

sufficient  .strength  to  carry  the  enterprise  through  from  Nashville  to  Harriman  we 
will  cooperate  with  you  on  a  fair  basis  as  to  the  handling  of  any  business  in  connectioa 
with  it  which  is  competitive  with  you.  I  note  your  advices  to  Mr.  Belmont  con- 
cerning our  agreement  that  neither  party  will  acquire  the  property  of  the  Marietta 
&  North  Georgia  without  the  consent  of  the  other,  and  I  confirm  that  agreement. 
Yours,  very  truly, 

S.  SPENCER,  President. 

It  had  been  intended  to  include  in  this  evidence  extracts  from  the  report  of  the 
investigations  of  the  Interstate  Commerce  Commission  respecting  the  affairs  and 
finances  of  the  Pere  Marquette  Railroad  Co.  and  Cincinnati,  Hamilton  &  Daytoa 
Railway  Co.;  also  the  investigation  respecting  the  St.  Louis  <fe  San  Francisco  System, 
in  both  of  which  the  same  essential  conditions  were  found  as  have  been  recorded 
respecting  the  three  systems  already  reviewed.  Time  and  space,  however,  do  not 
make  it  convenient  for  including  these  railroad  systems  in  the  present  evidence. 

X.    CONCLUSIONS. 

We  think  we  have  submitted  a  sufficient  body  of  authoritative  and  unimpeachable 
evidence  to  clearly  lead  to  but  one  conclusion,  namely,  that  no  regulation  short  of 
actual  and  complete  Government  ownership  and  operation  will  solve  the  railway 
problem.  Our  principal  transportation  and  communication  systems  reach  to  all  parta 
of  the  Nation  and  are  continuous,  not  located  in  spots  and  groups,  as  are  factories 
and  other  enterprises.  They  are  thoroughly  national  in  character,  and  must  be  nation- 
alized to  be  socially  effective. 

It  may,  of  course,  be  five  or  ten  years  after  Government  ownership  comes  before 
the  merits  of  the  plan  are  outstanding  above  private  ownership.  But  the  period  ia 
which  the  Government  has  been  in  control  and  facing  a  world  war  and  the  most 
adverse  obstacles  of  all  kinds  here  at  home,  has  been  quite  sufficient  to  demonstrate 
both  to  unbiased  experts  and  to  millions  of  our  people,  railway  employees  almost 
universally,  and  many  others,  that  Government  control  must  be  continued. 

If  the  roads  go  back  to  private  hands  there  is  grave  danger  that  the  recent  national 
labor  disturbances  on  the  railways  will  be  duplicated  with  greater  losses  than  were 
then  imminent.  The  employees  and  the  people  now  have  a  new  standard  and  ideal 
that  is  definite  and  concrete  m  their  minds.  They  will  not  rest  long  under  the  ineffi- 
ciency and  exploitation  of  the  old  regime.  They  have  been  made  partners  in  a 
democracy  of  industry,  and  they  will  not  readily  go  back  to  the  petty  autocracies 
and  exploitations  of  private  railway  management.  They  wish  to  live  as  well  as  to 
build  up  profits  largely  for  others;  they  desire  homes  and  leisure,  and  some  of  the 
simple  happinesses  that  are  the  right  of  all  freemen.  To  pass  the  railways  back  into 
private  hands  just  because  some  interested  parties  desire  them,  and  who  speak  with 
bated  breath  01  Government  ownership  as  if  it  were  a  dread  scourge  not  to  be  thought 
of  or  reasoned  about  and  investigated  candidly  in  a  broad  international  manner, 
will  but  start  again  the  old  iniquities  under  one  form  or  another,  and  initiate  a  fight 
that  may  take  in  all  transportation  systems  and  public  utilities,  and  carry  over  into 
public  ownership  enterprises  that  are  not  natural  monopolies,  and  that  our  Gov- 
ernment can  not  well,  or  should  not  now,  undertake  to  operate.  The  wise  and  safe 
policy  for  Congress  to  follow  is  at  least  to  heed  the  disinterested  advice  of  the  two 
railway  directors  general  and  to  give  a  fair  test  to  Government  control  for  five  or 
more  years;  but  the  extravagant  and  unjust  rate  of  rental  which  Congress  is  now 
giving  the  railroads  should  be  reduced  to  a  rate  what  is  fair. 

Neither  need  Congress  be  afraid  of  the  loss  of  initiative  and  enterprise  in  our  rail- 
ways when  nationalized.  The  questions  are:  Will  there  really  be  any  appreaciable 
loss,  and  would  not  even  a  considerable  loss  of  this  character  be  made  up  by  other 
gains?  More  progress  has  been  made  in  railway  reform  in  the  past  year  under  Gov- 
ernment control  than  in  the  past  50.  Does  this  indicate  lack  of  initiative?  If  we  had 
Government  ownership,  as  well  as  operation,  disinterested  initiative  and  inventive 
ability  could  come  to  the  fore.  Since  the  aim  would  be  national  service  in  peace 
or  war,  great  opportunities  would  arise  for  thousands  of  adaptations  to  the  needs  of 
the  country,  never  imagined  by  the  managers  who  (interfered  with  by  legislators 
who  were  trying  to  regulate  the  unregulatable,  and  by  investors  and  financiers,  who 
demanded  big  earnings  instead  of  increased  safety,  improved  lines  of  service,  and 
thorough  coordination  of  all  the  agencies  of  transportation)  spent  all  their  efforts 
in  making  the  roads  profitable  financially. 

We  are  on  the  road  to  a  cure  of  Government  dry-rot,  stagnationz  and  petty  officialism 
which  curses  many  democratic  efforts.  Great  reforms  are  on  their  way,  and  no  greater 
stimulus  to  efficient  government  could  be  devised  than  to  take  over  these  railways, 


44  EXTENSION   OF   GOVERNMENT   CONTROL  OF  RAILROADS. 

with  the  large  business  operations  they  entail.  Not  only  must  there  be  an  op^n- 
mindcd  and  honest  test  of  Government  control,  but  Congress  and  our  people  should 
etucly  carefully  the  methods  and  results  of  Government  ownership  and  operation 
in  the  many  other  countries  enjoying  this  plan,  with  the  ultimate  object  of  making 
it  our  national  policy.  We  have  seen  no  tendency  on  the  part  of  Congress  to  go  fully 
into  this  matter.  If  Government  ownership  will  succeed  so  splendidly  abroad,  it 
has  a  far  better  chance  of  success  in  our  great  country,  with  its  many  railway  advan- 
tages over  the  smaller  countries  having  Government  ownership.  Careful  studies 
ehow  that  these  systems  are  now  far  more  efficient  than  our  own  in  essential  respects 

Public  ownership  of  railways  need  not  be  as  a  red  flag  to  Congressmen.  Our  postal 
and  other  employees  by  the  thousand  have  not  built  up  a  political  machine  in  the 
postal  service,  even  though  they  are  suffering  from  salaries  below  what  are  necessary 
for  a  reasonable  standard  of  living  to-day.  If  they  have  not  engaged  in  widespread 
political  activities  and  if  there  is  not  in  the  postal  service  the  great  inefficiency  pre- 
dicted of  Government  ownership,  why  continue  to  be  frightened  by  the  words  "public 
ownership  of  the  railways?"  Railway  executives  and  their  representatives  raise 
this  fear  as  a  bugaboo,  but  they  do  not  prepare  briefs  against  public  ownership  nor 
argue  it  on  its  merits.  Fear  and  prejudice  and  false  associations  of  what  is  good, 
or  may  be  made  good,  with  what  is  hated,  serve  them  much  more  readily. 

Government  ownership  of  our  railways  is  thus  desirable;  it  is  practicable;  and  it  is 
the  only  democratic  and  just  solution  of  the  railway  problem,  the  great  emergency 
of  American  reconstruction. 

If  the  ideals  which  we  are  seeking  prevail,  service  not  profit,  democracy  not  autoc- 
racy, will  rule.  What  we  sow  to-day  we  shall  reap  to-morrow.  We  look  forward  to 
the  time,  which  we  hope  may  be  in  the  near  future,  when  through  the  patriotism 
of  our  citizens  and  the  heroism  of  our  soldiers,  the  victory  which  has  come  to  our 
arms  will  here  at  home  consummate  an  industrial  peace  that  shall  be  wise  and  just  to 
all,  as  one  of  the  best  fruits  of  the  great  sacrifice  America  has  made  in  this  world 
struggle.  Among  the  fruits  of  such  peace,  those  who  believe  in  equality  of  oppor- 
tunity, civil  liberty  and  democracy,  hold  as  highly  essential  the  public  ownership 
and  operation  of  our  railroads,  our  public  utilities,  and  our  natural  resources,  for  in 
this  way  alone  can  control  be  "of  the  people,  by  the  people,  and  for  the  people." 

o 


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